Julie Chariell:

Thank you and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer, and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of Fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measure to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. Now I’ll turn the call over to Frank.

Bob Hau:

Thank you Frank, and good morning everyone. If you’re following along on our slides, I’ll cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4. Our performance in the second quarter showcased our ability to sustain strong revenue growth and margin expansion. Second quarter total company adjusted revenue grew 7% to $4.8 billion, and adjusted operating income grew 12% to $1.8 billion, resulting in an adjusted operating margin of 38.4%, an increase of 160 basis points versus the prior year. For the first half of the year, adjusted revenue grew 7% to $9.3 billion, and adjusted operating income grew 13% to $3.5 billion, resulting in an adjusted operating margin of 37.2%, an increase of 180 basis points versus the prior year. Organic revenue grew 18% in the quarter with strength in both segments. The transitory contribution from Argentina was five points to our total organic growth in the quarter, down from seven points in Q1. In the first six months of the year, organic revenue grew 19%. Second quarter adjusted earnings per share was $2.13 compared to $1.81 in the prior year, up 18% and above previous full year guidance of 4% to 16%. Year to date, our adjusted earnings per share increased 18% to $4 compare to $3.38 in the prior year. Free cash flow for the quarter was $1 billion and $1.5 billion for the first half of the year. We expect free cash flow to be much higher in the second half of this year due to the timing of cash flows for the green tax credit program. Turning to performance by segment, starting on Slide 5, organic revenue growth in the merchant solutions segment was 28% in the quarter and 32% year to date. For the quarter, this includes a 10-point benefit from above average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 18%. On Slide 6, we’ve again included a summary of the impact of excess Argentine inflation and interest on total Fiserv and merchant segment revenue, along with the offsetting headwind from currency devaluation which impacts adjusted revenue. Adjusted revenue growth for merchant solutions was 9% in the quarter and 11% year to date. The quarterly results include a 19 percentage point currency headwind largely from the Argentine peso after a sharp devaluation in late December last year. Similar to Q1, the currency headwind to adjusted revenue growth was much higher than the inflation and interest tailwind in Q2. Moving to the business lines, small business organic and adjusted revenue growth in the quarter was 35% and 13% respectively. Clover revenue grew 28% in the second quarter on an annualized payment volume growth of 17%. The spread between revenue and volume growth continues to reflect a higher penetration of value-added solutions, continued channel mix shift, and value-based pricing. VAS penetration stayed constant sequentially at 20% in Q2, an improvement from prior years where we typically see a seasonal decline from Q1 to Q2. VAS penetration was driven by growth in Clover Capital and the Clover SaaS package and should expand with several new offerings coming in the second half. Overall, we remain on pace to meet our 2026 targets. Enterprise organic and adjusted revenue growth in the quarter was 27% and 9% respectively, driven by transactions growth of 8% and higher VAS penetration. As with small business, organic growth at enterprise includes some transitory benefit from excess inflation and interest in Argentina. We’re pleased with the pace of client uptake and growth in Commerce Hub. Daily transactions in Commerce Hub are up 3.5 times from Q1 levels and clients are increasingly connecting to enhanced solutions. Three of the most popular are pay by bank, which allows consumers to pay via ACH payment from their bank account at the point of sale; online EVT, which lets merchants grow by offering payment via government benefit programs; and digital payouts, which merchants increasingly use to pay employees and vendors. Finally, processing organic and adjusted revenue in the quarter declined by 7% and 8% respectively. This business represents the bank end processing we do for our partners, where they own the merchant relationship. A few large processing clients experienced declines in their volumes and revenue in Q2. Year to date, processing organic and adjusted revenue are both up 1%, similar to our guidance for flat adjusted revenue over the medium term. Turning to some merchant highlights outside the U.S., first in EMEA, the general tone of business is improving as inflation is easing and consumer confidence begins to rise across the region. We had a good quarter for new wins and renewals with follow-on business, and we are finding that our professional services capability in the region is a competitive differentiator that reinforces our right to win. We expanded our strategic partnership with BNP Paribas, one of the leading banks in Europe, allowing it to extend its current merchant acquiring footprint into Germany. Also in Germany, H&M Group, the second-largest clothing retailer in the world, selected us as their strategic partner for point of sale, building on our existing relationship in Mexico and highlighting the value we bring to multi-national retail clients. We are also working with Lloyd’s Banking Group, one of the leading banks in the U.K. and a key partner for Fiserv, on a major business transformation program for Cardnet, our merchant acquiring joint venture. Together, we will deliver tailored solutions including Clover, dynamic currency conversion and merchant cash advance to add new and grow existing merchant relationships. We’ve also been selected by Deutsche Bahn, the national railway company of Germany and one of the largest railway companies in the world, to provide terminals, network services and value-added solutions. We extended our relationship with Absa, one of Africa’s largest diversified financial services groups. We will be implementing our full AQaaS solution, or acquiring as a service, which will allow Absa to process ecommerce transactions in nine African countries. AQaaS integrates multiple value-added solutions including payment gateway, merchant onboarding, merchant portal, omnipay back office, open FX, and real time fraud monitoring. Finally, we’ve extended our merchant acquiring relationship with Żabka Polska, the largest convenience store chain in central and eastern Europe, based in Poland, with over 11,000 stores. We’ve grown to provide more than 20 products to this innovative client, most recently adding merchant cash advance, a growing value-added solution for us in the region. Moving to Latin America, in Brazil the extension of our Caixa relationship to their bill pay locations has begun to ramp with sequential volume growth of over 20% in Q2. In addition, we went live with our pilot for our Pix platform to act as a payment service provider to over 30 merchants. This capability came through the acquisition of Sled in November of 2023 and will open up new growth opportunities from instant payment activity in Brazil. Overall, we continue to grow our instant payment transactions in Brazil and Argentina. In Brazil, we reached more than 400 million transactions in Q2, up 21% from Q1 levels, and we doubled our number of transactions in Argentina. In Asia Pacific, we went live with our pilot merchant acquiring services in New Zealand, a new market for Fiserv. We plan to target omnichannel merchants primarily in the hospitality and retail segments, as well as ecommerce-only merchants, aggregation partners and payfacs. Adjusted operating income in the merchant solutions segment increased 18% to $882 million in the quarter, with adjusted operating margin up 290 basis points to 36.6%. Year to date, adjusted operating income increased 23% to $1.7 billion with adjusted operating margin up 360 basis points to 35.4%. As noted last quarter, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, merchant adjusted operating margins would have expanded 220 basis points for the quarter and 300 year to date. Turning to Slide 7 on the financial solutions segment, organic revenue grew 8% in the quarter and 6% year to date, in line with our full year outlook of 5% to 7%. Looking at the business lines, digital payments organic and adjusted revenue each grew by 8% in the quarter. Growth in Zelle transactions continued to be strong at 43%, and we signed one of our largest bank clients yet on Zelle, First Horizon Bank with $82 billion in assets, and the pipeline includes other large prospects. We continued to see strong demand from clients for FedNow and RTP integration. In Q2, we signed 32 FIs to FedNow, bringing our total signed to nearly 300. In issuing, organic and adjusted revenue grew 9% and 4% respectively in the quarter, driven by account growth internationally and new loan accounts in North America. Another growth vertical that we’ve been highlighting is government, where we continue to win and convert large programs, including the California Employment Development Department, which has enrolled over 1 million of our money network prepaid cards, funding nearly $5 billion. In Q2, we won an electronic funds transfer mandate with a major U.S. agency which should help extend our double-digit growth in the federal market. We also won several state and local deals on the merchant side of the business, including Texas, Arizona, North Carolina, and the City of San Francisco. Meanwhile, we are continuing to make strides with prior large wins, implementing the first phase of a target program with output services, though we expect the vast majority of revenue will start in Q1 2025, when the Circle card accounts begin to go live. Issuing has a meaningful and growing presence outside the U.S., and we have been investing to roll out the next generation of First Vision, our international operating platform. In Q2, we won our first client on the new First Vision platform in Brazil. Banking organic and adjusted revenue grew 6% and 4% respectively in the quarter. Excluding periodic revenue, organic revenue grew 4% in the quarter. We had two Finxact wins this quarter, including Metropolitan Commercial Bank, a $7 billion bank and an existing Fiserv core client that has decided to build a migration path to Finxact. The pipeline remains robust, including embedded finance opportunities, and we completed the integration of Finxact with Commerce Hub. This allows our enterprise merchants to embed a robust suite of financial services for their customers across shopping and checkout experiences. Second quarter adjusted operating income for the financial solutions segment was up 6% to $1.1 billion, and adjusted operating margin was consistent with a very strong second quarter last year at 45.9%. Year to date, adjusted operating income for the segment was up 6% to $2.1 billion, with adjusted operating margin up 80 basis points to 45%. Now let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $134 million in the quarter and $282 million year to date, in line with our expectations. The adjusted effective tax rate in the quarter was 19.9% and 18.1% for the first half, and we continue to expect the full year rate to be approximately 20%. Total debt outstanding was $25.5 billion on June 30. Our debt to adjusted EBITDA ratio was steady at 2.8 times, within our target leverage range. During the quarter, we repurchased 10 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to just over $5 billion, and nearly $15 billion since the 2015 merger. We had 32 million shares remaining authorized for repurchase at the end of the quarter. Turning to Slide 9, as Frank said earlier, we are raising our full year adjusted earnings per share outlook to a range of $8.65 to $8.80, up from $8.60 to $8.75, and an acceleration in forecasted adjusted EPS growth to 15% to 17%, from 14% to 16%. We are maintaining our 2024 organic revenue growth outlook of 15% to 17%, and raising our estimate for adjusted operating margin expansion to more than 135 basis points compared to at least 125 basis points. Previously, our organic growth guidance assumed seven points of contribution from excess inflation and interest in Argentina, but during Q2 we saw a faster than expected decline in both measures. This more rapid return to historic average is good news for our Argentine business and overall stability in the region; however, the extra revenue contribution will now be less this year. Based on the latest economist consensus, we now assume four points of benefit from excess inflation and interest this year, down from seven points. Nevertheless, we are reiterating our previous organic growth guidance for the year despite exogenous shifts affecting our business. This capability has become a hallmark of Fiserv today. It is a testament to the adaptability of our business model that comes from a broad product portfolio, diverse client base, resourceful management team, and global reach. This quarter, we offset the lower inflation and interest benefit in Argentina with additional anticipation revenue, another quarter of dólar turista revenue, and other growth across the company. Our full year outlook of 15% to 17% total company organic growth less the four-point transitory benefit from inflation and interest in Argentina puts our normalized growth at 11% to 13% for 2024. This is in line with our medium term guidance of 9% to 12%, which assumes macro factors from Argentina continue to normalize. The forecasted impact from foreign currency exchange remains 8.5%, and we anticipate will continue to be a stronger though declining headwind to adjusted revenue growth relative to the tailwind from excess inflation and interest. Wrapping up with free cash flow, first I’d like to note a change to our cash flow reporting. We moved the Clover Capital and LATAM anticipation activity to the investing section of the cash flow statement, beginning in the second quarter. We re-evaluated the presentation in our cash flow statement given a significant increase in the merchant cash advance activity. This change is consistent with how our peers account for these activities and the additional disclosure will provide greater transparency to our investors. This move affected our free cash flow since those amounts are no longer included in cash flows from operating activities, so we are adjusting our full year free cash flow outlook accordingly by increasing our guidance to $4.7 billion from $4.5 billion, since we expected $200 million of outflows for merchants’ cash advances when we originally set our 2024 outlook. With that, let me turn the call back to Frank for some closing remarks.

Operator:

Thank you. We would now like to open the phone lines for questions. [Operator instructions] For our first question, we’ll go to the line of David Togut from Evercore ISI. Please go ahead.

Frank Bisignano:

Yes, I think first of all, when you look at what we’re doing on global penetration, we have--you know we talked about Mexico, Australia and Brazil. You should expect Brazil and Mexico in August as a pilot. I would see it as a full ramp in 2025, I’d treat August like a friends and family. But remember, our business in Brazil, the things we’ve done with Caixa, the things we’ve done growing the business, you know, probably eight, nine years ago from a start-up into a tremendous competitor, so we have growth projections for that market that we would expect it to perform as our business has in Brazil. Mexico - you know, we’ve built a business there, we continue to grow that business. We feel our Mexico and Brazil build is very similar, that’s why you see them coming out together. Once again, a friends and family in August [indiscernible], and obviously we’ll watch that build through the fourth quarter and then full effect in ’25. We feel really great about our position on Australia and what we’re going to do in Australia. You’ll see us in September, and that as a friends and family. We have expectations of larger partner wins there also that are very, very highly motivated to have Clover in market in ’25, so. I don’t think you’ll get a ton of growth out of it this year. We’ll update you later in the year on our expectations in ’25, but those builds are in full force. We have partners who want it bad, and we see the market demand for all that. Thanks for that question. You know, David, we got on the call and talked about a celebration that we’re really having right now, which is the 40th anniversary of Fiserv and the fifth anniversary of the merger. But I think what I realized when I got up this morning is we’re actually celebrating your retirement from Evercore, and if my information’s right, because you know we love to count everything here, you’ve covered Fiserv for 29 years and that’s spanned four CEOs, and I’m fortunate to stand on the shoulders of those who became before me, so I cherish our time together. Then I think I’m right in 32 years on First Data - I can’t really account for all the CEOs that came before me specifically post KKR, but thank you for everything you’ve done for the industry. Thank you for the work, and I think it’s a celebration of your career and your retirement from Evercore. Thanks for being here with us today.

Bob Hau:

Congratulations, David.

Operator:

Next, we’ll go to the line of Tien-Tsin Huang with JP Morgan. Please go ahead.

Bob Hau:

Yes, thanks Tien-Tsin, good morning. First on the margin outlook, as you heard in our prepared remarks, we raised our margin outlook actually for the second quarter in a row, and now greater than 135 basis points. The original guide back in February was greater than 100 basis points. That’s really driven by two factors. One is just the scale and volume of the company - as we add more revenue, it drops through to the company average--excuse me, better than company average rates, and continue to see good growth. The second one, of course, is ongoing productivity - we continue on an ongoing basis, as Frank said earlier, measure everything, and we continue to see progress towards achieving increased productivity across the organization, and so the combination of very strong organic growth, 15% to 17% this year plus productivity allows us to continue to expand margin on a multiple year basis. Then in the merchant processing side, as you know, the processing business line for us is where our clients own the merchant contracts, and so we are providing the back end processing for those clients. In many cases, it’s banks, could be wholesale ISOs, and what we saw is some volume decline out of those processing contracts in the second quarter. Of course, on a year-to-date basis, we are plus-1% for the first half of the year, and that’s in line with our ongoing expectation that it’s roughly flat in this business line going forward.

Jason Kupferberg:

Good morning guys. Thanks for taking the question. Great to see the ongoing revenue performance here. I was curious just to ask about some of the underlying metrics - small business volume growth, enterprise transaction growth. We did some slowdown there in Q2, probably more than can likely be explained just by leap year, so was hoping you could unpack those a little bit in terms of where you saw some of the softness. Was it certain verticals or higher income versus lower income consumers, and then just anything you can give us on what you’ve seen in July so far? We heard from Visa last night about a little bit of softness related to hurricane and CrowdStrike. Thank you.

Frank Bisignano:

Yes, maybe I’d make a couple other general macro comments. One, when you looked at--you know, we’re very, very proud of what we believe we’ve created with the FSBI and our ability to track it. Obviously we talked about how our numbers don’t exactly mirror the FSBI because of our international presence and the fact that we have verticals that we think outperform. We see a slowness in July, but we see growth in July as we look at it right now. It’s in line with really Q2 if you look at it, and slightly ahead of June. I think also as you look across our book and our total portfolio, you’ll also see the slowing in credit originations across our book which covers retail private label and general purpose, but all of this within our expectation range. I’d also make a secondary point around volume and revenue. We are no longer a volume-only shop. We have lots of VAS, both at the enterprise level and at the SMB level, and it really was the design of how to proceed. We have great feeling about our ability to grow merchants globally, and that’s inclusive of the U.S., so that all falls into our expectation set and I think in total when you look at the business performance and the portfolio size and scope, our hedge is very, very strong.

Timothy Chiodo:

Great, thank you for taking the question. I wanted to hit up on CashFlow Central, just given it’s about to go live here. It’s six large clients you mentioned. In terms of the monetization, I believe it’s a combination of subscription fees and then also transaction fees, including some interchange revenue potentially. I was hoping you could break that down a little bit more, and then also talk a little bit about how the revenue will be recognized across the two segments. Thanks a lot.

Bob Hau:

And Tim, I’d say we feel very good about signing up six large banks before we’ve gone live. We’re quite encouraged on the demand from those financial institutions and the excitement they have. As Frank points out, it’s a revenue generator with them, it allows them to bring themselves closer to their small business client, which is an important client base for them, and for us, the opposite of our consumer bill pay solution which is a fee that the banks pay us but typically do not charge consumers, and so it’s an expense item. For CashFlow Central, it’s actually a revenue generator - they’ll likely charge their small business clients a subscription, again generate revenue for themselves and obviously for us as transactions flow, so feel very good about the opportunity and very encouraged on the very, very early read.

Dave Koning:

Yes, hey guys. Thanks, and nice job. I guess my question, in the banking sub-unit, you grew 4% ex periodic revenue. That’s the best we can see in the six quarters or so since you’ve given the new segment data. Is there something about the market that’s getting better or something that you’re doing more specifically, and is this higher level sustainable?

Operator:

Next, we’ll go the line of Darrin Peller from Wolfe Research. Please go ahead.

Bob Hau:

Yes Darrin, so our expectation, our outlook for this year for the financial solutions segment is 4% to 6%--excuse me, 5% to 7%. Year to date, we’re at 6%, so we’re right at the midpoint of that full year outlook. We anticipate as we go into ’25 and ’26, our medium term outlook for the financial solutions segment increases a point to 6% to 8%, so 5% to 7% this year, we’re right at midpoint halfway through the year, and we expect that to accelerate into ’25 and 2026. That’s really driven by the benefits of exactly what you called out - CashFlow Central coming online, growth in XD, our digital banking solution, Finxact, and a broad suite of capabilities that we have continuing to take hold and meet the demands of our financial solutions client base. We also have on the issuing side, as you heard us talk about back in November at the investor day, several large client wins that will go live in 2025 and beyond, things like Verizon and Target and Desjardins all giving us a lift, so we feel quite good about where we are first half of the year and what we see going into ’25 and ’26.

Dan Dolev:

Hey Frank and Bob. Really nice results. I just wanted to go back to the more sort of guidance in merchant and macro - I mean, pretty impressive results despite, I’d say, the more muted tone at Visa yesterday. Can you maybe provide just a little bridge in terms of what needs to happen for the guide, or the fact that you maintained the guide for the year? Is there anything--is it all idiosyncratic wins, etc., which is what we suspect, or is there anything else in there? And again, congrats.

Operator:

Next, we’ll go the line of James Faucette from Morgan Stanley. Please go ahead.

Frank Bisignano:

Thanks Jim, good to hear from you. You know, we’ve been really, really feeling good about the Clover strategy and continuing to refine it. Obviously we know there will be a day where we’re going to come back to you and say, we hit it directly into the back book, but we see so much front book activity opportunity between our international, between our ISV, between how we’re thinking about the verticals like services, like restaurants, that we’re continuing to build that product set, that VAS. Obviously it’s an outperformer in attrition across the total book, and we have the benefit of looking at attrition rates from everything. We look at them from what our ISO portfolios are attriting versus our ISV portfolios attriting, versus our agent versus our direct book, and we feel really, really good about how it’s performed. We’re continuing to ramp up our investment in value-added services and vertical expertise there. We’ve made a set of commitments - you know, 3.5 and then 4.5 and pen rates, and you know, we think about the merchant business being $10 billion, then $12 billion, and all of those feels really, really tight and on track. Obviously--you know, I always have to say we started Clover with seven engineers and three [indiscernible], and now we’ve got a global franchise, so it’s straight in our sites. Obviously we have lots of other great things in our portfolio, but it also is a key to why we have 900 financial institutions, and I would expect over a period of time on this journey that if you ask me, we haven’t ever made a commitment or guided to any financial institution, but you should expect us to continue to grow that at a double-digit number every year. I don’t know if that’s helpful, Jim?

Ramsey El-Assal:

Hi, thanks for squeezing me in here. I wanted to ask about M&A, and I guess specifically given the valuation, multiples on the public company side seem to be much lower than on the private side. Does that tilt the opportunity set for you guys more towards acquiring public peers? Would you have an appetite to move in that direction, Frank?

Frank Bisignano:

I’d like to thank everybody for their attention today. Obviously we’ve got a great IR team, so reach out to them with any further questions. Have a great day, and I look forward to talking to you in the future.

Julie Chariell:

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. As a reminder starting in the first quarter of this year Fiserv now reports two segments

Bob Hau:

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on slide four. First quarter performance demonstrated our ability to deliver top line growth and continue to drive margin expansion. First quarter total company adjusted revenue grew 7% to $4.5 billion and adjusted operating income grew 13% to $1.6 billion, resulting in adjusted operating margin of 35.8%, an increase of 180 basis points versus the prior year. As a reminder, our adjusted revenue was recast as part of our realign segment reporting. And if you haven't already, I encourage you to review our 8-K filing from March 26 for historical comparisons. The recast numbers include a small change to our adjusted revenue in the prior years to account for all pass-through postage. In our prior reporting, we adjusted the postage pass-through revenue only from our output business, which represents the significant majority of our postage activity. We are now adjusting out the non-output pass-through postage revenue as well. The change slightly lowered our adjusted revenue for the recast prior periods and better aligns with our internal reporting. On an organic basis, revenue grew 20% in the quarter, with particular ongoing strength in Merchant Solutions organic revenue, which was up 36%, and steady growth of 5% in financial solutions organic revenue. First quarter adjusted earnings per share increased 19% to $1.88, compared to $1.58 in the prior year. Our adjusted earnings per share in Q1 grew well above the 14$% to 16% growth level anticipated for the full-year. Free cash flow for the quarter was $454 million. While this number is lower than normally seen in the quarter, it is in line with our expectations given the timing of payments for the green tax credit program. This timing is consistent with what we described during last quarter's earnings call, and we expect this cash flow headwind to become a tailwind in the second-half of this year when we apply the credit to lower our second-half cash tax payments. We continue to expect to generate $4.5 billion in free cash flow for the year. Turning to performance by segment. Starting on slide five, organic revenue growth in the Merchant Solution Segment was 36% in the quarter. This includes a 15-point benefit from excess revenue driven by above average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 21%. On slide six, we've added a summary of the impact of excess Argentine inflation and interest on total Fiserv and Merchant Segment revenue, and the offsetting headwind from currency devaluation, which impacts adjusted revenue. Adjusted revenue growth for Merchant Solutions was 13% in the quarter. It includes a 23 percentage point currency headwind largely from the Argentine peso and the impact of the devaluation in late December last year. Unlike in 2023, the currency headwind in Q1 ‘24 was much higher than the inflation and interest tailwind. If interest and inflation fall back to normal levels, which we expect to happen in the medium term. We anticipate the headwind from foreign currency exchange would ease as well. Moving to the business lines, small business organic revenue growth and adjusted revenue growth was 45% and 16% respectively. Small business volume growth was 8%. As I mentioned, over the last few quarters, revenue from the excess inflation interest in Argentina is boosting organic growth, while the currency devaluation is a headwind to adjusted revenue. Clover revenue grew 30% in the first quarter and annualized payment volume growth of 19%. The spread between revenue and volume growth reflects a higher penetration of value-added solutions, continued channel mix shift, and some pricing. Vast penetration reached 20% in Q1, up from 19% in Q4, and on pace to meet our 27% target by 2026. The increase was driven by revenue from Clover Capital, Rapid Deposit, and our basic Clover SaaS plans. Clover Capital is our short-term working capital advance program. Rapid deposit allows merchants to access money from daily car sales instantly for a fee. And while there are several standard Clover SaaS plans, the basic package includes virtual terminal, e-commerce products, developer tools, invoicing, and transaction reports. These are just some examples of the value-added solutions available with Clover. Enterprise organic and adjusted revenue growth was 29% and 6% respectively, driven by transactions growth of 12% and higher vast penetration. As in small business, organic growth includes some transitory benefit from excess inflation and interest in Argentina, but was also impacted by the inclusion of three lower growth products as part of the shift in our business segmentation to start this year. Finally, processing organic and adjusted revenue grew by 9% and 10%, respectively. As mentioned in the past, processing represents the back-end processing we do for our partners where they own the merchant relationship. The increase this quarter was driven by a termination fee from an existing client, who canceled a planned expansion into new geographies. This will not impact ongoing revenue in established geographies where our relationship with this client remains strong. Excluding periodic revenue, processing revenue declined 2% in the quarter. This business line has no revenue from Argentina. Overall, we continue to anticipate processing adjusted revenue to be roughly flat over the medium term. Adjusted operating income in the Merchant Solution Segment increased 30% to $769 million in the quarter with adjusted operating margin of 440 basis points to 34.1%. In accordance with GAAP, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, Merchant adjusted operating margins would have still expanded a very strong 390 basis points for the quarter. Turning to slide seven, on the Financial Solutions Segment, organic revenue grew 5% in the quarter, which is in line with our full-year outlook of 5% to 7%. Looking at the business lines, digital payments, organic and adjusted revenue each grew by 5%. Dell transactions and number of clients continue to grow at a healthy clip at 45% and 20% respectively. And we continue to see strong demand from clients for FedNow and RTP integration. Issuing organic and adjusted revenue grew 8% and 3% respectively, driven by several factors, including the launch of money network cards to unemployment and disability benefit recipients under the California Employment Development Department Program. Banking organic and adjusted revenue declined 1% and 3%, respectively. Excluding periodic license and termination fee revenue, banking organic revenue grew 2%. First quarter adjusted operating income for the financial solution segment was up 6% to $1 billion, and adjusted operating margin was up 160 basis points to 44.1%, driven by operating leverage from scaled revenue growth and cost efficiency. As we highlighted at our Investor Conference in November, the cross Fiserv activity between our two segments is particularly powerful, because following the success of the Fiserv first data merger, we are the only single provider of merchant, Bank IT, and payments functionality. Let me share three examples where we've had important cross-Fiserv wins in Q1. In our debit networks, STAR and Accel, we have five merchant wins in the quarter, including ConocoPhillips, a traditional merchant, along with a social media company and a PayFac, both of which will be able to benefit from more choice under Reg II. Traditional and online merchants are using our debit networks to efficiently route card transactions at the point of sale. These wins drive revenue in our digital payments business line and often go hand in hand with merchant acquiring wins and other value-added solution sales that only Fiserv offers. A second example can be found in open banking, where we provide our data solutions to facilitators such as Plaid and MasterCard Open Banking as a single API into the open banking data of our financial institution clients. In Q1, we signed a data access agreement with Visa Open Banking Solutions acquired through Tink as they entered the U.S. The data is typically used by clients of these organizations to verify bank accounts for payments and transfers, underwrite loans, and facilitate financial wellness and planning, and by merchants to facilitate pay-by-bank transactions as just a few examples. Third, over the past year, we have announced a number of wins in the government sector, and we're excited about our continued momentum in this large vertical across our merchant and financial segments. Revenue from government clients recently surpassed $500 million. Now, let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $148 billion in the quarter, largely in line with our expectations. The adjusted effective tax rate in the quarter was 18.2%. The Q1 tax rate is traditionally below the full-year rate, and we continue to expect the 2024 adjusted effective tax rate to be approximately 20% for the full-year. Total debt outstanding was $24.4 billion on March 31. Our debt to adjusted EBITDA ratio slightly increased to 2.8 times within our targeted leverage range. And we have approximately 7% of our debt in variable rate instruments. During the quarter, we repurchased 10.2 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to $4.7 billion. We had 42 million shares remaining authorized for repurchase at the end of the quarter. Our long-standing capital allocation strategy will continue in 2024, defined by a strong balance sheet, share repurchases, and complementary and innovative acquisitions. As Frank said earlier, we continue to expect organic revenue growth of 15% to 17% for the full year. One quarter into the year, we are maintaining our 2024 organic revenue growth rate outlook. While the interest in inflation tailwind from Argentina eased faster than we expected, further moves in the balance of the year remain unclear, while our overall business remains strong. For the full-year, we now expect adjusted operating margin expansion to be more than 125 basis points, up from our previous outlook of at least 100 basis points. This translates to adjusted earnings per share of $8.60 to $8.75, a $0.05 increase in our outlook at the midpoint, which is 14% to 16% growth over 2023. This performance for 2024 would represent our 39th consecutive year of double-digit adjusted EPS growth. With that, let me turn the call back to Frank for some closing remarks.

Operator:

Thank you. We would now like to open the phone lines for questions. [Operator Instructions] Our first question comes from David Togut from Evercore ISI. Please go ahead.

Frank Bisignano:

Yes, hey, thanks David. You know, we've been focused on all of those for quite some time, and we treat unveiling new product, new initiatives, new market, while continuing to, you know, draw on the embedded business we have generating new merchants, right? So, you know, our basic philosophy is increase the number of merchants we have, be able to deliver more products to merchants, and then go into the areas that we haven't been before. So we feel very, very good about what we laid out a couple of years ago and what we talked about in November. You can see the traction here, which is kind of above what the CAGR needed to be, but you should expect us to be all cylinders on Clover, as we have a bunch of other parts about company also, I would have to say. Thank you.

Tien-Tsin Huang:

Thanks so much. Good morning. Just the increase here in the operating margin, how much of that 25 bps is from favorable mix versus other surprises, maybe the term fee and processing, and the Argentine, of course, is always a factor there. Just curious on the increase, and then any call-outs for the second quarter or the second-half with respect to the margin? Thanks.

Frank Bisignano:

Yes, and I’d just add, you know, when we think about running this company, our investment in technology is really around new product development, improved service, and the ability to deliver the next dollar of revenue at a better incremental cost by investing in productivity. So that will be for the rest of our lives. An AI and those type of items just allow us to do more of it. We're at the tip of that, but you know we can see our way very clearly this year. Q - Tien-Tsin Huang Nice color. Thank you.

Dave Koning:

Yes, hey guys, great job again. And maybe just on the financial segment, digital slowed a bit this quarter. I think it was 5% or 7% to 8% the last few quarters. Wondering just about that and if Reg II, if you've kind of fully benefited from that or if that still has incremental room to benefit and accelerate growth in that part?

Dave Koning:

Got it. Thanks. And if I can just do one more quick. SMB grew so fast 45%. Clover grew 30%. So non-Clover is actually growing faster, which I assume is just Argentina. But maybe how is non-Argentina, non-Clover doing, and is there room for that to keep growing well too?

Dave Koning:

Got it. Great job. Thanks, guys.

Operator:

Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead.

Bob Hau:

So, a number of elements to that question. First, in order to achieve the $4.5 billion goal that we set out ahead by 2026, we need kind of a very high 20% call it 28% total Clover revenue growth. As part of that goal, we've indicated we expect VAS to achieve 27% penetration from the current quarter Q1 at 20%. So certainly a big part of it is additional VAS. And we've talked about this in the past, the secret recipe to growing Clover to $4.5 billion is actually not so secret. It's get new merchants, sell more stuff to those merchants, and grow with those merchants, and that's exactly what we see. To your point, in the current quarter, there was a big part of the overall revenue left. Certainly, the delta between revenue and volume was driven by VAS. We kind of gave the sequence in order of importance, and I think that will continue as we progress over the next couple of years as we march towards that $4.5 billion, VAS will be a big part of it. This is always priced depending on what's going on with inflation, what's going on in the market, but that's probably the third of the three important factors.

Bob Hau:

Thank you.

Jason Kupferberg:

Good morning guys. I just had a two-part question on merchant. The first is just do you have the total segment volume and transaction growth for the quarter? Not sure if you're going to continue to provide that going forward? And then the second part is just on the April comments. Frank, I think you indicated actually a little bit of an uptick in April relative to Q1, which could be viewed as a bit of an upside surprise considering Easter timing and how that fell this year? So just curious which parts of merchant might have performed better so far in April versus Q1. Thank you.

Bob Hau:

Yes, so the first part of your question is, in our prepared remarks, we gave a small business volume growth at 8% and enterprise transactions growth at 12%. Given the way we're reporting now for that Merchant Solution Segment and the three business lines. We felt that the volume for small business is the driver of revenue, and for transactions, it's enterprise. Transaction activity in small business is not a revenue driver and volume for enterprise is not a revenue driver. So we thought providing the key metrics that really are driving the business was important.

Operator:

Thank you. Next we'll go to Dan. Yes, we'll go to Dan Dolev from Mizuho. Please go ahead.

Frank Bisignano:

Yes, the way -- great question. The way we think about, Pay Easy, it was a processing system that were retired and then built out both commerce hub and brought some of that volume, which already existed through Clover to the future new merchants. That was completed, migrated, multi-year project that we built out in a way that allowed us to build out Commerce Hub, that allowed us to deliver VAS into Commerce Hub and also have Pay Easy operating within our SMB base. So I feel great about closing the books on that from a conversion standpoint. And we're seeing on the enterprise side, you heard us talk about 200 Commerce Hub users and a strategic platform for us going forward.

Operator:

Next, we'll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Frank Bisignano:

Well, you know, I don't know about urgency on sellers' parts as much as valuation and understanding what real valuations are. Now, we have a really great model, which we talked about our ability to generate cash flow, investing in our business, and the ability to deploy capital. I think we've done a very, very good job in the assets we've acquired, integrated, and grown. And so I'd say our appetite to acquire properties is always high. I mean, we're always trafficking. I think on the other hand, you know, we want to be very, very, very clear that it fits within our strategy, which I think is holding tight. It's within our structure and the ability to distribute the product to our vast client base both on the merchant side and on the FI side. You know, so, you know, I like to believe that we're always engaged and working and thinking through it. And we're highly selective to make sure we're using our shareholders' dollars as appropriately as possible. And I think we've got a pretty darn good track record in that so far.

Ramsey El-Assal:

Fantastic. Thanks.

Operator:

Next, we'll go to the line of Christopher Kennedy from William Blair. Please go ahead.

Frank Bisignano:

Well, I think it’s a -- we have not articulated goals around them, but they're clearly embedded in our guide and the things we think about our growth rates, right? I think what we think about, even at a more broader standpoint, is what those are, right? And you could go across the board from our fraud integration products like advanced defense to how even we bring in cash flow central. You heard us talk about that and that really hangs both in the SMB space through our own distribution and then, you know, obviously attached to a banking product. I think, you know, over time we probably should come back with a better clarity around some of it. Having said that, we've been selling value-added services to our clients, we've sold a gift product into our enterprise for a long time. We've sold different forms of data and information to them. So I think really the way we look at it at the large macro level in the enterprise is really that you can go back to the circle that we used to have about, we're going to sell a core, but really all the revenue comes when growth comes from debit, credit, right? Digital, and in their own right, those are value-added services hanging off the core. The same is true in our enterprise business and merchant. So I think in reality, when you look at how we report, we are reporting, you know, our economics and some of those actually value-added services and business lines also. So, you know, I'll go think about it a little more, but I think, you know, it's encompassed in the economics and how we show our business lines.

Operator:

Next we'll go to -- yes next we’ll go to the Jamie Friedman from Susquehanna. Please go ahead.

Frank Bisignano:

Good. So why don't I start with how are we going to government, how are we going to market in government? We've been focused on government as a very large vertical calling and that is everywhere from state and local to federal. And so we have a team and their sole job is government, right? And the traffic in the transactions, you've even been hurt. And you know, our thought was always, it transcends the org. That's why we have dedicated client sales force to it because, you know, at times we have opportunities to bid on merchant acquiring. At times you heard us talk about delivering FinXact. You know, the government is we called out the $0.5 because it demonstrated where we started, which was very, very small to the growth, but it transcends both segments. And on any given day, almost any one of our products can play in the government space, right? You know, so I don't know if that answers your question, but I think about it as dedicated coverage model, right? Transcending the businesses, and it can be anywhere from our core Finxact, which we just delivered to money network to merchant acquiring and we really love this segment, vertical, however you want to think about it. And we have a great, great team that knows how to cover government, and we've been very fortunate in that win.

Operator:

Thank you. And our final question will come from James Faucette from Morgan Stanley. Please go ahead.

Frank Bisignano:

Well, I try to be as clear as possible on this, Clover covers the whole SMB market and expands a little further, because you've heard about the 1,000s of Clovers we delivered in the quarter to venues, right? You know, it's a 30% grower today. We have talked very hard and have worked to do to finish the swing on restaurant, but feel very, very clear about our ability there. You know, you'll see us go deeper in professional services and in retail. Remember, it's a horizontal platform that we brought vertical expertise to. And then, you know, we have great demand outside the U.S., as you heard us talk about, along with the ability to continue to distribute through our channels like more in our ISV channel. So I think it spans the landscape of SMB. Obviously, our growth, which is through new business acquisition, has demonstrated at the 30% mark. And, you know, it's an open platform that we continue to add more software to. And so when you put that all together and where we started with, I like to remind us inside the house and outside the house that we were seven engineers and three patents and now you know we have more than a 1,000 software engineers across the world operating on it [Technical Difficulty] so we're going to complete rolling and so commensal across the world.

Frank Bisignano:

Good. And I'd like to thank everyone for their attention today. Please reach out to our IR team with any further questions, and have a great day. Thank you.

Julie Chariell:

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter and full year are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now over to Frank.

Robert Hau:

Thank you, Frank, and good morning, everyone. If you’re following along on our slides, I'll additional cover details on total company and segment performance, starting with our financial metrics and trends on Slide 4. Fourth quarter and full year results reflected our focus on delivering on our commitments with momentum across the business. Total company organic revenue growth was 12% in the quarter with ongoing strength in our Merchant Acceptance and payments and network segments, offset by a decline in the Fintech segment against a very difficult compare. For the full year, total company organic revenue also grew 12% ahead of the guidance we provided in October and November. This performance was led by the Merchant Acceptance segment, which grew 19%. Fourth quarter total company adjusted revenue grew 6% to $4.6 billion and adjusted operating income grew 10% to $1.9 billion, resulting in an adjusted operating margin of 40.7%, an increase of 150 basis points versus the prior year and a sequential improvement of 260 basis points. The 40.7% represents a post-merger high for Fiserv. Our fourth quarter performance brought the full year adjusted operating margin to 37.3%, an increase of 220 basis points over 2022. Fourth quarter adjusted earnings per share increased 15% to $2.19 compared to $1.91 in the prior year. Full year adjusted earnings per share increased 16% to $7.52. Those adjusted EPS results do not include $0.12 per share in expense relating to the significant devaluation of the Argentine peso as part of the government reform package on December 12 last year. This one-day move led to a non-operating, non-cash foreign exchange loss for the revaluation of our local balance sheet as required under GAAP rules for hyperinflation accounting. All other Argentine foreign exchange losses throughout 2023 are included in the adjusted EPS results. Free cash flow came in at $1.3 billion for the quarter and $4 billion for the full year, an increase of 14% over last year. Now looking to our segment results starting on Slide 6. Organic revenue growth in the Merchant Acceptance segment was 24% in the quarter and 19% for the full year, well ahead of our previous medium-term segment guidance of 9% to 12%. This includes an 8 point benefit to the full year organic growth from the transitory revenue driven by above-average interest and inflation in Argentina. Adjusted revenue growth was 14% in the quarter and 12% for the full year. You can see from the spread between organic and adjusted revenue growth that currency headwinds from the devaluation of the Argentine peso offset the benefit of the country's very high inflation and interest for the full year in adjusted revenue. Global merchant volume and transactions in the quarter grew 5% and 8%, excluding wholesale processing respectively. Clover revenue grew 30% in the fourth quarter, an annualized payment volume growth of 17%. For the full year, Clover revenue was up 25%. The spread between revenue and volume growth comes from higher penetration of value-added solutions, channel mix shifts and some pricing. VAS penetration reached 19% in Q4, up from 16% in the year-ago period and on pace to meet our 27% target by 2026. Carat also had a strong quarter with revenue growing 11%. For the year, Carat revenue grew 9%, excluding the loss of a Latin American processing client that moved in-house. Revenue growth was 15% for both the quarter and the year. Adjusted operating income in the Merchant Acceptance segment increased 26% to $819 million in the quarter, with margin up 400 basis points to 38.8%. Full year adjusted operating income improved 23% to $2.9 billion and margin grew 330 basis points to 35.1%. Over the last couple of quarters, some of you have noted that our revenue includes anticipation in LatAm, but the cost of that anticipation interest is not included in operating margin, as it is reported as interest expense below the operating income line on the income statement. If we were to take that interest from anticipation and pro forma it back to operating income, merchant margins would still have expanded a very strong 220 basis points for the quarter and 260 basis points for the year. Looking at 2024, January's overall volume growth, excluding processing, was similar to December's pace. Difficult weather throughout large portions of the U.S. did slow volume growth for a 2-week period in mid-January, but we've seen clear improvement in volume growth since then. The Fiserv Small Business Index also points to steady spending and a healthy environment for small businesses in January. We reported the index on February 2, with a value of 138, representing year-over-year growth of 1.7% and one-tenth of 1% growth from December on a seasonally adjusted basis. The Fiserv Small Business Index measures U.S. small business activity and is not a direct indicator of Fiserv results, but rather a measure of general pace of activity and health of this key Fiserv client base. Turning to Slide 7, on the payments and network segment. Organic revenue grew 4% in the quarter. This growth was enabled by a variety of drivers across our business lines. We have well over 200 financial institutions live or implementing FedNow and saw continued strength in Zelle, with transactions and number of clients growing at 44% and 23%, respectively for the quarter. Full-year organic revenue growth of 8% was at the upper end of our medium-term outlook range of 5% to 8%. Fourth quarter adjusted operating income for the segment was up 8% to $877 million and margin was up 250 basis points to 51%, driven by operating leverage and some third-party productivity we had been working on throughout the year that came in through the fourth quarter. For the full year, adjusted operating income was up 13% to $3.2 billion and margin expanded 250 basis points to 47.8%. Moving to Slide 8, in the financial technology segment. We posted a 1% organic revenue decline for the quarter and 2% growth for the full year. Organic revenue, excluding periodic revenue, grew 4% for the full year, and client momentum continued with 12 core wins in the quarter, reaching 42 wins for the year. We had expected some strong license sales in the quarter to reach the bottom end of our full-year guidance, but in several cases, these did not materialize as clients instead chose our application service provider, or ASP model. This is where we host the software in our data centers instead of clients purchasing their own software licenses. It had the effect of lowering in-quarter revenue in Q4 and instead spreading it out as monthly payments over multiple years. Adjusted operating income was down 11% in the quarter to $303 million and flat at $1.2 billion for the year. Adjusted operating margin in the segment decreased 340 basis points to 37.9% in the quarter. Full-year margin increased 10 basis points to 36.6% with the lower periodic revenue. The corporate adjusted operating loss was $110 million in the quarter and $494 million for the full year. The adjusted effective tax rate in the quarter was 18.7% and was 19.3% for the year. We expect the 2024 adjusted effective tax rate will be approximately 20% for the full year. Total debt outstanding was $23.1 billion on December 31st. The debt to adjusted EBITDA ratio dropped another tenth of a turn to 2.7 times within our target leverage range. We have approximately 10% of our debt in variable rate instruments. During the quarter, we repurchased 8.6 million shares for $1 billion, bringing our total 2023 share repurchase to $4.7 billion and nearly $10 billion in the last three years. The diluted average share count fell 5% from 2022 levels. We have 52 million shares remaining authorized for share repurchase at the end of the quarter. Our longstanding capital allocation strategy will continue in 2024, defined by a strong balance sheet, share repurchases and complementary and innovative acquisitions. Turning to Slide 9. As Frank said earlier, we expect organic revenue growth of 15% to 17%, with adjusted operating margin expansion of more than 100 basis points. This translates to adjusted earnings per share of $8.55 to $8.70 or 14% to 16% growth over 2023 and would represent our 39th consecutive year of double-digit adjusted EPS growth. In Merchant Solutions, we anticipate organic revenue growth in the 25% to 28% range, including 14 percentage points of transitory revenue growth in Argentina. This is higher than the outlook given at our investor conference in November due to the effects of the steep devaluation of the Argentine peso mid-December. For Financial Solutions, we continue to expect 5% to 7% organic revenue growth this year. We continue to estimate approximately $4.5 billion of free cash flow for 2024. In the second half of 2023, we launched a new initiative to purchase green tax credits where we buy tax credits at a discount from companies who earned but cannot use them. This reduces the net cash tax paid and in many cases defers the cash payment by a quarter or two. A recent new rule codified this practice for 10 years, so we expect to continue to benefit from it. This will bring more variability to our quarterly cash flows. In 2024, there will be a headwind in the first quarter and first half when we paid for the credits and a tailwind in the second half when some of the tax refunds are received. While we do anticipate some shifts in timing, we continue to expect full year free cash flow of approximately $4.5 billion. With that, let me turn the call back to Frank for some closing remarks.

Operator:

Thank you. [Operator Instructions] For our first question, we'll go to the line of David Togut from Evercore ISI. Please go ahead.

Robert Hau:

Yes, David, good morning. And your assessment is right on the mark. The total company organic revenue growth went up from back in November. We said 11% to 13%. We now expect 15% to 17%. We previously indicated the impact, the favorable impact of higher than normal interest and inflation in Argentina, would drive about six points of growth, to the Merchant segment, or about three points to the total company. We now expect that excess inflation and interest, is about seven points of growth, to the total company. So essentially, the growth - the increase in organic revenue growth, is really attributed, to higher inflation and interest expense, out of Argentina. The underlying, "more normal organic growth" of the Merchant segment and of the company remain consistent with what we expected and saw back in November. The other element, of course, as we talked about in November is, there is a natural counterbalance in our adjusted revenue, and in our income statement that higher excess inflation and interest rate, also drives a higher currency variation, or FX headwind. And that also increased about four points from the November. So net, our adjusted revenue, our EPS, our operating margins, very consistent, isolating out just that Argentina impact.

Robert Hau:

Yes. From a Clover standpoint, you saw the acceleration of revenue in the fourth quarter to 30%. We've talked quite a bit about the Clover growth rate, accelerating into our Investor Day commitment. Actually, both back in our March of 2022 call-out where we really focused in on Clover overall, where we gave an outlook to 2025. We updated that back in November to 2026. So adding another year of our outlook, we continue to believe, obviously, that we'll deliver against that $10 billion for the total company and $3.5 billion for Clover in 2025. And then $4.5 billion for Clover in 2026. We feel good about the trajectory. I wouldn't suggest that we're going to get 30% every single quarter, but there's a lot of elements that are driving that growth, and we feel good about the overall trajectory.

David Togut:

Thanks so much.

Tien-Tsin Huang:

Hi, thanks. Wanted to follow-on with David's question just on the merchant side with volume and transaction growth. The spread there is really still quite favorable, both total and with Clover. So looking out, should we expect some kind of cyclical mean reversion with that, tightening plus under this value-added services promotions, and you mentioned pricing as well. So, what can we assume there since we're all trying to do the benchmarking exercise? Thanks.

Tien-Tsin Huang:

Right, right more retail stuff, that's good. Glad to hear revenue faster than volume. Just my quick follow-up, then just I mean Frank and Bob you both talked about a lot of good wins, across all the lines here. Just thinking about the outlook for new deal activity in 2024, should we expect, or do you see a lot of large deals, or is it more of a cross-selling wins with some of the new products? What do you see for this coming year here? Thank you.

Robert Hau:

And Tien-Tsin, the term cross-sell, is obviously something we use internally quite a bit. We talked to you folks about, ultimately, we have a very wide swath of clients. The U.S. bank deal that we announced this morning on CashFlow Central, that's a big transaction with a large bank, but it's a cross-sell. They are a large client of ours. They currently use CheckFree for their consumers. They'll now expand to CashFlow Central, for their businesses and merchants. And so, we'll continue to see lots of opportunities. It'll sometimes be, "new logos", but also selling additional capabilities to our existing client base.

Operator:

Next, we'll go to the line of Darrin Peller from Wolfe Research. Please go ahead.

Robert Hau:

Yes, Darrin, good morning. So a couple of things. One, when we sign a license deal, typically that's a three or five-year license. You get a large license transaction. December is always a pretty high month for license activity, and you get ongoing maintenance, but license is certainly the big chunk. When you convert, or when a client instead goes to an ASP contract, you book that over the five-year period every single month. On a per account basis, or per transaction per user basis, depending on the product, and depending on the client contracting. We feel good. Ultimately, that's actually a better economic transaction for us. So, we like that transition. If you look at 2023's results and you combine the two bank and credit union facing segments, Fintech and payments and network, we did about 6% organic growth on a combined basis. If you look at our outlook for 2024, we reiterated what we said back in November. We expect that combined segment or the new segment financial solutions, which is largely a combination of the existing Fintech and payment, to be in that 5% to 7% range. And actually accelerate into 2025 and beyond up to 6% to 8%. So feel good about the overall growth of that business. The product portfolio, adding things like CashFlow Central, selling more payment solutions, benefits of Fintech as that goes live and gets deeper into the marketplace. We feel good about overall, our ability to continue to grow our capability selling into the banks and credit unions.

Frank Bisignano:

Yes. I mean, we really do like our hands across the Board in the company. You've seen us add things like Fintech, which I think really compliments our ability to compete anywhere, anyhow, along with DNA, which has really proved itself. If you go to a merchant business, we're still largely focused on building out more verticals. That would be retail and services and continuing to complement, what we're doing in Bento. I think - our software stack is strong and we're continuing to add functionality to it. We think our pen rate will continue, to do what we've forecasted. Obviously, we're always looking at opportunities to invest, as a minority investor and you've seen us do that and things like Bento and Fintech and others. Ondot, which ended up being in more than a thousand institutions, tagged to our mobility product to - give an unbelievable experience to a thousand banks. So I think we feel good about our hand. We're always looking at can we add software functionality, and you should expect us to continue, to be great stewards of capital deployment, as I hope you all feel we have been.

Operator:

Next, we'll go to the line from Timothy Chiodo from UBS. Please go ahead.

Robert Hau:

Yes, I think we tried to give pretty significant transparency around, the last part of that question with "excess inflation" in interest on in Argentina. Just as a side note, our LatAm business in Argentina business is a great business. Obviously, we've got this variation going on, on the "excess", but that's a tremendous business. LatAm overall growth in Clover as we bring Clover down to Brazil. We'll add Mexico later in the year. So, we feel very good about our overall capabilities there. To the first part of the question, I would say broadly we continue to expand our distribution capabilities. We have a long track record of ISO and ISV partners, bank channel partners. We have traditionally not had a big direct business. That continues to grow, but we also continue to grow pretty meaningfully in the ISV channels - with expansion of ISV capability into Clover. And having that Clover asset makes us a pretty significant partner of choice, not only for ISVs, but also the bank channels. We see growth there. As a percent of growth, our direct business, is probably growing the fastest, but a little bit of it's the smallest piece. It's the newest piece of the organization, but we're seeing good growth across the board.

Operator:

Next, we'll go to the line of Dan Dolev from Mizuho Securities. Please go ahead.

Robert Hau:

You're asking about 2023?

Robert Hau:

So, I wouldn't necessarily have a split for you in my fingertips. So, we can look to get that for you. And I think - I would tell you that it's been pretty consistent. Obviously, we always have a relatively large software capital software spending, given the nature of our business, and I think that remains relatively consistent.

Dan Dolev:

Yes, exactly on the value-added service.

Robert Hau:

Sorry, I heard CapEx spending.

Frank Bisignano:

That's okay.

Frank Bisignano:

That's why we got four years here.

Frank Bisignano:

Well, as I continue to say, we have been committed to debit network, STAR and Accel, their strategic assets within the company. As Reg II turns into reality. You've heard us talk about nearly 20 wins. Obviously, we compete at every level. There's fabulous competition out there for these transactions. But embedded in what we're looking at is, obviously more opportunity than we had before Reg II and the fact that some of those household names that, you heard like HelloFresh or Lyft, or others give us that opportunity. So, I think it's off to a decent start. It remains to be determined over the longer haul, but we feel good about the Reg II opportunity.

Frank Bisignano:

Thank you.

Jason Kupferberg:

Good morning, guys. I just wanted to follow-up on the Fintech segment and the dynamic you saw there, where you switched kind of from the - or the clients wanted to switch kind of from the license model to more the recurring ASP model. Do you see this as kind of a one-off development with a handful of clients? Is this a broader trend? Just anything you can give us maybe around where that segment sits now in terms of percentage of revenue that's kind of more periodic versus recurring and what you're projecting on that front going forward?

Jason Kupferberg:

Okay. Good color. Just on a separate note, we saw last month, Fiserv applied for a bank charter in Georgia. Can you just talk about the steps, potential time line to get that application approved, what the benefit to Fiserv would potentially be, whether that's on the cost side, or ability to provide additional solutions to merchants? Thanks.

Jason Kupferberg:

Thank you, Frank.

David Koning:

Yes. Hi, guys. Great year. And I guess my question on merchant. So you guided 25% to 28% organic. And then you talked about 14% benefit from FX and inflation. So, you're down to a core of kind of 11% to 14%, do both North America and international grow in that range, which presumably is taking quite a bit of share?

David Koning:

Got you. And just a quick follow-up. FX losses, will you not add those back again through 2024? I know Q4 seems like the anomaly, you won't add those back. And maybe how big do you expect that to be an interest expense in 2024?

David Koning:

Got you. Thanks, guys. Great job.

Operator:

And for our final question, we'll go to the line of Ashwin Shirvaikar from Citi. Please go ahead.

Robert Hau:

Yes. I think, first off, broadly, across the company. I don't see a big variation from quarter-to-quarter or first half to second half. There are obviously some specific comparisons within individual segments, or individual margins. But broadly, generally in line across the board with the one nuance in our merchant acceptance business. I would expect organic revenue, to be higher in the first half of the year than in the second half of the year. Because we do anticipate, some improvement in interest rates and inflation in the second half relative, to what's going on there, as the economy deals with some of the things that the government is putting in place hopefully with their expectation that, they ease inflation and interest rates remains to be seen. But of course, that's offset by FX. So on an adjusted revenue basis, from a margin standpoint and EPS, relatively stable. The other thing I would just reiterate, we talked a bit about it in our prepared remarks. Cash flow will definitely have some variation with tailwinds in the second half of the year after some headwinds in the first half. But again, we have a good degree of confidence in the $4.5 billion for the full year.

Robert Hau:

Yes. First off, the latter part, yes, I would agree. We are anticipating, I think, like the rest of the world at this point, a soft landing things seem to be on track for that. A bit softer macro environment, modestly slower GDP in 2024. The FSBI is based upon a very broad set of data that we have across our company that we then extrapolate to the entire U.S. market. So, it is not a direct indication of Fiserv activity. If there are differences in region mix of - we're very strong in restaurant. We might have more restaurants than, we do nail salons, or so we go through the NAICS codes across the country, different industry weightings, different regions. When we take our data and extrapolate it, across the U.S. So it's very much a very real-time indicator of the health of small businesses. Now relative to our performance, we're the largest merchant acquirer in the country. So, if there's variation in the FSBI, you're likely to see variation in Fiserv's results relative to some nuances of different regions, industry weightings, et cetera. But certainly, a strong FSBI indicator index would be good for us, a weaker index would be a headwind for us. We're actually quite proud of that capability not only is it using all of the data we have, by the way, including cash transactions, which obviously, don't manifest themselves in our numbers for merchant acquiring, but we have the data, and it's very real time. We're able to provide that information two days after the month ends. It's not a perfect proxy, but it's a proxy.

Robert Hau:

Thanks.

Operator:

Thank you all for participating in the Fiserv fourth quarter 2023 earnings conference call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.

Julie Chariell:

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I’ll turn the call over to Frank.

Robert Hau:

Thank you, Frank, and good morning, everyone. If you’re following along on our slides, I will cover details on total company and segment performance, starting with our financial metrics and trends on Slide 4. As Frank said, our third quarter was very strong. We are confident in our new 2023 outlook and ability to continue to deliver attractive levels of growth and profitability. Total company organic revenue growth was 12% in the quarter with strong growth across Merchant Acceptance and a solid recovery in growth in the Fintech segment. Year-to-date, total company organic revenue grew 11%, led by the Merchant Acceptance segment, which grew 17%. Total company adjusted revenue of $4.6 billion grew 8% for the quarter despite a meaningful foreign currency headwind. Adjusted operating income grew 17% in the quarter to $1.8 billion, resulting in adjusted operating margin of 38.1%, an increase of 290 basis points. Year-to-date, adjusted revenue grew 8% to $13.4 billion, and adjusted operating income increased 16% to $4.8 billion, resulting in adjusted operating margin of 36.1%, an increase of 250 basis points. Adjusted earnings per share for the quarter increased 20% to $1.96 compared to $1.63 in the prior year. Year-to-date, adjusted earnings per share increased 16% to $5.34, at the high end of the 14% to 16% annual prior guidance range. Our adjusted earnings per share growth is particularly noteworthy given the impact of foreign currency translation. Mostly due to the sharp devaluation of the Argentine peso relative to the dollar, our earnings per share includes a headwind of $0.24 for the quarter versus prior year. Free cash flow reached $1.3 billion for the quarter, up 48% versus the prior year and $2.7 billion for the first 9 months of the year, up 29%. We are raising our free cash flow guidance and now expect to reach $4 billion this year, reflecting the typical strength in our cash flow generation in the second half of the year. Now looking to our segment results starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a strong 20% in the quarter and 17% year-to-date. We now anticipate organic revenue growth to be in the high teens for the full year. Adjusted revenue growth was 12% in the quarter and 11% year-to-date. Organic revenue growth in this segment is running well ahead of our medium-term guidance for 9% to 12% growth, driven by growth in Clover, our ISV channel and our international businesses as well as several transitory factors that we expect will ease in future years. The elevated Argentine inflation, which is running well above 100% this year, contributed about 2 points of organic growth for the segment on a year-to-date basis. Additionally, high interest rates in Argentina have contributed to a stronger growth in anticipation revenue. But even as rates normalize, we expect demand for these prepayments to be healthy given the extended settlement periods here as well as in Brazil and Uruguay. Turning to volume performance in the quarter. Merchant volume grew 2% overall and 6% excluding wholesale processing. Similarly, transactions grew 1% overall and 9% excluding processing. Recall that a large portion of our volume comes from traditional wholesale processing. However, over the last several years, we’ve been evolving from providing processing services alone to offering full acquiring services and more recently software and other value-added solutions. This transition changes our business model for the better. Our SMB and enterprise acquiring businesses carry much higher revenue per dollar volume compared to the wholesale processing business. So as acquiring grows and wholesale processing becomes a smaller portion of our volume, we are seeing a widening positive spread with revenue growth outpacing volume growth in large part due to value-added services. Going forward, processing volume will ebb and flow. As a reminder, we projected $10 billion of revenue in this Merchant Acceptance segment in 2025 with processing revenue roughly flat from 2021 to 2025. We expect overall revenue growth will continue to outpace volume growth as we increase penetration of software and services, which means more revenue per unit of volume. Clover continues to build on the strength of its growing product offering, distribution partnerships, expanded direct sales and value-added solutions. It posted a strong 26% revenue growth for the quarter and 23% year-to-date. Quarterly Clover GPV was $68 billion or $272 billion on an annualized basis, up 15%. Value-added services penetration was 17%, over 2 points above year-ago levels and on track to achieve our 25% target by 2025. Carat, our omni-commerce operating system for enterprise clients, grew 14% excluding the loss of a large merchant aggregator, as discussed last quarter. On an unadjusted basis, Carat revenue grew 2%. We had two large wins that included our Commerce Hub product, the new single orchestration layer that enables easy access to all our products and services. First with Curb Mobility, the taxi-hailing service; and second, with Autobooks, an accounting and bookkeeping system provider to small business. Adjusted operating income in the Acceptance segment increased 24% to $757 million in the quarter, and adjusted operating margin was up 350 basis points to 35.9%. Year-to-date, adjusted operating income improved 22% to $2 billion and adjusted operating margin grew 300 basis points to 33.8%. Turning to Slide 6, the Payments and Network segment. Organic revenue growth in the segment was 6% in the quarter and 9% year-to-date. Adjusted revenue growth in the quarter was 5% and 8% year-to-date. Growth drivers in this segment include North American credit active accounts on file, though growth here slowed a bit to 3%. And Zelle transactions grew 44%, which continued to benefit from new uptake of Zelle for Business. Our debit networks, STAR and Accel, added several new merchant customers, including some household names in e-commerce, in part to take advantage of Reg II benefits. These and prior new client adds represent a strong pipeline of prospects for the Merchant Acceptance business. We also won a deal to support Pinnacle, a $42 billion bank by assets, in a combined debit processing and network win, demonstrating our ability to successfully support and sell to larger banks. Outside the U.S., we closed a 5-year deal with a Tier 1 U.K. bank to support the launch of a new buy now, pay later solution to be delivered using a combination of our FirstVision processing technology and our new suite of digital solutions. We also won a contract with Bandhan Bank, India’s eighth-largest bank, further cementing our position as a market leader in credit processing in India, bringing the number of Indian banks on our FirstVision processing platform to 10. As we’ve said, we expected tougher comparisons through the second half of the year given the anniversary of the onboarding of several large clients through mid-2022. We continue to anticipate the full year organic revenue growth rate to be toward the high end of our medium-term outlook of 5% to 8%. Adjusted operating income for the segment was up 12% to $832 million and adjusted operating margin was up 270 basis points to 48.6% in the quarter, driven by favorable mix and greater productivity. Year-to-date, adjusted operating income was up 14% to $2.3 billion, and adjusted operating margin was up 260 basis points to 46.7%. Moving to Slide 7, the Financial Technology segment. Organic revenue growth in the segment was 6% in the quarter and 3% year-to-date. Adjusted revenue growth in the quarter was 4% and 1% year-to-date, impacted by the divestiture of our financial reconciliation product announced at the beginning of the quarter. For the year, we expect organic growth to reach the low end of our guidance range of 4% to 6%. Adjusted operating income was up 11% in the quarter to $291 million and up 5% to $856 million year-to-date. Adjusted operating margin in the segment increased 260 basis points to 36.7% for the quarter. For the first 9 months, the segment’s adjusted operating margin grew 130 basis points to 36.1%. We added eight new core account processing clients in the quarter, including three wins with financial institutions whose assets exceeded $1 billion. Two wins came from growing credit unions, including Noble-Federal, that saw the benefits of upgrading to DNA, our industry-leading cloud-enabled core for both credit unions and banks. The adjusted corporate operating loss was $120 million in the quarter and $384 million year-to-date. The adjusted effective tax rate in the quarter was 19.2% and was 19.6% for the first 9 months. We continue to expect the adjusted effective tax rate to be approximately 20% for the full year. Total debt outstanding was $23.3 billion on September 30, and the debt to adjusted EBITDA ratio dropped to 2.8x. During the third quarter, we issued $2 billion of 5-year and 10-year senior notes to replace the notes that matured in October and reduced our commercial paper program balances. Variable rate debt sits at 7% of total. During the quarter, we continued executing capital allocation strategy, repurchasing 9.6 million shares for $1.2 billion and 31.4 million shares for $3.7 billion over the last 9 months. We had 60.5 million shares remaining authorized for repurchase at the end of the quarter. We are fully committed to our long-standing disciplined approach to capital allocation, which includes investing in our business organically, maintaining a strong balance sheet, returning cash to shareholders through share repurchase and pursuing high-value and innovative acquisitions. And wrapping up on Slide 8. Year-to-date, organic revenue growth is at the top end of our prior guidance for the full year, and we expect the level of business activity in the fourth quarter to be similar to the third. While consumer spending is forecast to be slower in the second half of the year relative to the first, the consumer has remained resilient and unemployment levels remain low. Bank and credit union IT spending continues at a healthy pace as higher interest rates have been a tailwind for profitability. The combined scenario gives us confidence to raise our full year organic revenue growth to 11%, the top end of our previous guidance range of 9% to 11%. Based on this higher anticipated organic revenue growth and strong third quarter results, we are raising our full year adjusted EPS guidance range once again from the previous $7.40 to $7.50 to a new range of $7.47 to $7.52, representing growth of 15% to 16% over 2022. This includes a higher adjusted operating margin, now expected to improve more than 175 basis points this year, up from our prior guidance of at least 150 basis points. We look forward to seeing you at our Investor Day on November 15. Space is limited, so for those of you who cannot attend in person, please take advantage of the webcast from our Investor Relations website. With that, let me turn the call back to Frank.

Operator:

Thank you. We would now like to open the phone lines for questions. [Operator Instructions] Our first question comes from Timothy Chiodo from UBS. Please go ahead.

Frank Bisignano:

Thank you, Tim. Good to hear from you. I’d start at the top, right? We committed to the build-out of our omni-channel capability and we brought in Commerce Hub as fundamentally a centerpiece of that. And that really gets to the point that you bring, which is what I would call more value-added services than just fee account volume. Our debit routing capability is very, very strong, and it allows us to, also with the debit network, to be able to give our clients the opportunity to work on lowering the cost of acceptance, a platform that we’ve thought about across the business for a very long time. Created other value-added services, like our prepaid products and gift, also gives us what we believe is a strategic advantage. So in many of our businesses, you’ll hear us talk about it across – we’ll have the fundamental processing capability and acquiring capability, but then bringing across the other value-added services. And that’s the benefit of this company, it gives us a strategic advantage. So I think about it in those aspects, really. And I think when you look at PayPal and the like, it gives us a really good hand to be able to do more with them besides only e-comm, and also for other clients, it’s the omnichannel experience that we bring to them across the enterprise.

Frank Bisignano:

Thank you.

David Togut:

Thank you. Good to see the acceleration in Clover revenue growth and the increased penetration of value-added services. Could you just drill down into what you see as the biggest drivers of growth in value-added services going forward, taking you to the model you’ve laid out for 2025?

David Togut:

And just as a quick follow-up. Bob, good to see the free cash flow up 48% year-over-year in the third quarter. CapEx was down 17%. Are we moving toward lower capital intensity going forward? Or is this just a function of an easy comparison?

David Togut:

Thank you very much.

Tien-Tsin Huang:

Thank you. Great results here. On the Acceptance side in Lat Am specifically, I’m curious with the anticipation revenue likely to ease there, and you gave some disclosure. I’m just curious, what do you see replacing that growth in Lat Am? How does the deal pipeline look there?

Tien-Tsin Huang:

Glad to hear, Bob. Just real quick, if you don’t mind me asking another one just on Fintech. You mentioned medium bank – and overall bank spending has been healthy on the IT side. How about new deal activity, large deals, et cetera? Do you see that continuing here as we cross into the new calendar year? I’m just curious where the appetite is for new spend in the banking community.

Tien-Tsin Huang:

Terrific. Thank you.

Jason Kupferberg:

Good morning, guys. Thanks. So on the Acceptance segment, it doesn’t sound like your Q4 guide is really contemplating any material change in the trajectory of overall consumer spending. I was hoping you could maybe give a little insight into what you’ve seen in October, both with regard to volume and transaction data ex-wholesale versus September, let’s say? And any shifts in discretionary versus nondiscretionary spend categories in the past month? Thanks.

Jason Kupferberg:

Okay. Good to hear. And just on the Fintech segment, it looks like you need to see maybe a little bit of organic growth acceleration in Q4 against a bit of a tougher comp to get to the low end of that 4% to 6% guide. Can you just parse out some of the drivers there and your visibility on that?

Jason Kupferberg:

Thanks, Bob.

Dan Dolev:

Hey, great quarter. Congrats. I was particularly interested in the Melio partnership. Frank, can you maybe give us some more color, if you think like 2, 3 years out, how could this change the way people think of Fiserv in terms of kind of its B2B capability, Zelle, all the projects that you’re hopefully planning to do with them? Thank you.

Dan Dolev:

Great. Thank you, and congrats again on the amazing quarter.

Operator:

Next, we’ll go to the line of Dave Koning from Baird. Please go ahead.

Frank Bisignano:

Yes. But I think it’s good to step back for a second here because we’ve been in a multiyear transformation that has allowed us to produce what we’re producing today. That would include Clover. That will include building a business in Brazil. That will include bringing Clover to Argentina, right? So there’s a lot of dimensions to how we are where we are. The ability to drive ARPU in our base, we get a wholesale processing business, which we talked about being $1 billion of revenue and flat, but that business is like 40% of our volume. In that core direct business that we continue to grow, you should continue us to bring more product in and just make those relationships stickier. And what we see is when we have 3 to 4 products in a client, the churn is best-in-class. And that’s why we’re so focused on ARPU and more clients. Yes, in single-dimensional clients that aren’t Clover, you see higher churn.

Robert Hau:

Dave, I actually don’t have that right at my fingertips. It’s not a number we’ve disclosed previously. Let me get that. But I think one of the elements or one of the reasons we disclosed that and brought that to everybody this year – or excuse me, this quarter, is to talk about exactly what Frank just pointed out, is this long-term transition from years ago, being a processing-only business, to now a full service capability merchant acquirer. In our March 2022 investor conference on our Merchant business, we talked extensively about building out that Clover software value-added services capability, becoming an operating system. We have an operating system for SMB clients. We have an operating system for enterprise clients. And so as the processing eases a bit from a volume standpoint, the impact to the revenue is a fraction of the processing volume delta. And in many cases, that processing volume becomes merchant acquiring volume at a much better value point for the company because, not only are we doing merchant acquiring, but we’re selling the value-added services. And that delta you saw in Q3 from an overall volume to essentially an enterprise plus SMB volume at 6% is more representative of the overall volume opportunity for the company. And that’s why you’re seeing a very strong organic growth rate in the Merchant segment this quarter, last quarter, last year, the previous year.

Operator:

Next, we’ll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Frank Bisignano:

Yes. I would say we’re always working on how to make things better, right? That’s just every day, we get up, how do we make it better? How do we make it better for our clients? How do we eliminate work that’s not necessary? How do we deliver better quality? How do we do all that? And that’s an element of it. The other element of it is high-quality revenue growth. And our incremental drop-through is very, very strong. So I would say investment, we’ve been completely plowed into, meaning we’re continuing to build our business and invest in our business and deploy resource to it. We have – we always are working on productivity and quality. We talk about a year of operational excellence. But our incremental drop-through rate is very, very strong on the business we have. So I would take it as a mix element. We’re never going to be just one or the other. As I said in my remarks, we do have a lot of discretionary investment, but we feel great about that. And that’s why the Melio product will be out in the summer of ‘24, as an example. So high-quality revenue, good incremental drop-through, continually driving better client stats and productivity. So it’s got to be all of it. We don’t do just one.

Frank Bisignano:

Well, first of all, we talked about it as flat, right? We talked about you should expect it to be fundamentally flat by $10 billion. Now that may mean less volume, even better yield in there, right? There’s a big mix of what’s in processing. We have an ISO business and we have a bank processing business. And by the way, tomorrow, we could bid on another piece of processing. I view it, as I’ve always said, and maybe this is just my heritage and it won’t ring with everybody, as running a correspondent clearing business and running a wholesale broker dealer. I’m never going to get the correspondent clearing business to be a high growth, but it definitely is $1 billion for us that covers a lot of fixed. But our emphasis is on growing our direct business. So I’ll turn over to Bob. And I want you to have that picture. We don’t see it as zero, we said it’d be flat in ‘25.

Operator:

Yes, absolutely. And for our final question, we’ll go to Vasu Govil from KBW. Please go ahead.

Frank Bisignano:

I think it was really organically going on. I mean – but if you look at what we just did with Plaid, we’re always going to veer in to bringing more capability to out bank partners. We’re a client business. We run a huge client franchise. We’re out talking to them every day, whether it was what we did at Forum with 3,000 clients, or what we do at [AGBA] or what we do by having 29 women CEOs here for an all-day conference, we want to listen to our clients. And so open banking has been going on, and we’re continuing to align in a way that try our client for franchise.

Robert Hau:

I think – yes, I think you’ll continue to see good revenue growth as we continue to have deeper penetration of value-added services, not only in the small business, but also in the enterprise space. We’ll continue to put up very good growth. And as we said, we expect the full year to be in the high teens. On a year-to-date basis, we’re at 17% organic, so we see another strong quarter ahead of us.

Frank Bisignano:

Thank you for your participation, everybody. We really appreciate your time and attention. Please feel free to reach out to our IR team with any questions, and have a great day.

Julie Chariell:

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from our actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I’ll turn the call over to Frank.

Robert Hau:

Thank you, Frank, and good morning, everyone. If you’re following along on our slides, I’ll cover details on total company and segment performance, starting with our financial metrics and trends on Slide 4. As Frank said, our second quarter was a very good one and marked our ninth quarter in a row of double-digit organic revenue growth. Total company organic revenue growth was 10% in the quarter with strong growth across Merchant Acceptance and Payments and Network. Year-to-date, total company organic revenue grew 11%, led by the Merchant Acceptance segment which grew 16%. Our three international regions also continued to perform well, growing 31% organically in the second quarter. We saw strong growth in the issuer solutions revenue across all three regions and robust gains in Latin America for our Merchant segment. As Frank explained, while Argentina inflation grabs the headlines, the bigger driver of our growth here is anticipation revenue, reflecting a newer business for us in Merchant prepayments. In the near future, inflation in Argentina may ease, but it’s likely to stay persistently high relative to the rest of the world. Our broad franchise, new lines of business and strong growth in the rest of the region should balance out any single country’s macroeconomic issues. Second quarter total company adjusted revenue grew 6% to $4.5 billion and adjusted operating income grew 16% to $1.6 billion, resulting in an adjusted operating margin of 36.5%, an increase of 300 basis points versus the prior year. For the first half of the year, adjusted revenue grew 8% to $8.8 billion and adjusted operating income increased 16% to $3.1 billion, resulting in adjusted operating margin of 35.1%, an increase of 240 basis points versus last year and tracking ahead of our 2023 guidance. Adjusted earnings per share for the quarter increased 16% to $1.81 compared to $1.56 in the prior year. Year-to-date through June 30, adjusted earnings per share increased 14% to $3.38 at the high end of our 12% to 14% annual guidance range. Free cash flow came in at $608 million for the quarter and $1.5 billion for the first six months of the year, up 16% year-to-date. Our free cash flow remains on track to reach $3.8 billion this year, and we’ve retained line of sight to accelerating cash flow generation in the second half as is typical for our business. Now looking to our segment results starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a strong 14% in the quarter and 16% year-to-date. Adjusted revenue growth in the quarter was 9% and 10% for the first half. Merchant volume and transactions grew 1% compared to prior year. This lower volume performance reflects two temporary factors. First is the decline in retail fuel prices of 27% on average in the quarter, which creates a tough comparison for petrol merchant volume growth. The second is related to some strategic realignment among large processing clients that’s impacting their volumes and represents a large portion of our processing-only volume. Excluding these two isolated factors, volume growth would have been 4%. It’s important to note that volume changes for both petrol and processing-only clients had very little impact on our revenue since petrol clients typically pay per transaction and processing carries very low fees. Nevertheless, they are big contributors to volume and thus the spread between our volume growth and revenue growth is particularly wide now. This should moderate over time. Other factors contributing to the wider spread are rising penetration of software and services and pricing benefits from both higher inflation and added value. We expect these to be positive contributors to revenue on an ongoing basis. Clover, our operating system for small- and medium-sized businesses, continues to build on the strength of its growing product offering to attract and retain more merchants and expand our revenue opportunity with them. Clover posted a strong 23% revenue growth for the quarter and 22% year-to-date. Quarterly Clover GPV was $67 billion and $267 billion on an annualized basis, up 15%. Value-added services penetration was 16%, 1 point above year-ago levels and on track to achieve our 25% target by 2025. We signed 40 ISVs this quarter, bringing our total signed to 77 year-to-date. Our momentum is starting to build with PayFac as well with the signing of Waystar and Pay Theory during the second quarter. Clover Sport added a relationship with a large service provider for the Cleveland Browns Stadium and other venues. Carat, our omni-commerce operating system for enterprise clients, grew revenue 6% in the second quarter. Excluding the loss of a Latin America processing client that began taking its business in-house, Carat grew 14%. While our relationship with the client remains good, we’re focused on growing our higher-value direct business. The underlying Carat business remains strong. We’ve expanded our merchant processing relationship with Inspire Brands, the second-largest restaurant company in the United States, to include several more of their restaurant concepts while continuing our relationship with their Dunkin’, Baskin-Robbins and Sonic brands. The agreement will add several thousand additional restaurant locations to our processing portfolio. Adjusted operating income in the Acceptance segment increased 21% to $718 million in the quarter, and adjusted operating margin was up 350 basis points to 34.7%. Year-to-date, adjusted operating income improved 20% to $1.3 billion, and adjusted operating margin grew 280 basis points to 32.7%. Turning to Slide 6. The Payments and Network segment posted organic revenue growth of 9% in the quarter, once again above the high end of the 5% to 8% medium-term guidance range. Notable growth drivers in the segment included active accounts on file in North American credit processing business; the Output Solutions business; our debit networks, STAR and Accel; and Zelle, led by continued growth in both the number of clients and transaction growth. As we’ve said, we expect tough comparisons through the rest of the year as we anniversary a large new client onboarding completed in mid-2022. Still, we anticipate the full year organic revenue growth rate to be towards the high end of our medium-term outlook of 5% to 8%. Also notable for this segment, two new payments initiatives took effect this month, offering incremental revenue opportunities for Fiserv over time. First, July 1 was the effective date of the Fed’s final rule clarifying parts of Regulation II to make explicit that at least two debit network routing options are required for card-not-present transactions. For our STAR and Accel debit networks, which have been supporting CNP for years, this led to more than 80 of our current issuing clients enabling card-not-present, adding active cards for e-commerce transactions. This is a growth opportunity that we did not previously have. We also won several large e-commerce merchants as clients, including, in the second quarter, Lyft, ADT and T-Mobile. Last week, the Fed launched its real-time payment system, FedNow. So we are now live with six banks in the pilot phase and more than 70 committed to go live so far this year. We are encouraged by the opportunity to add more financial institutions since more than 1,000 of them are already connected to our NOW Network for Zelle, providing a single point of integration that could be leveraged by FIs to easily add new rails. That’s a major differentiator for Fiserv. But the key to FedNow adoption is compelling use cases, which we think will grow over time, most likely in commercial payments and bill pay spaces. Adjusted operating income for the segment was up 17% to $782 million and adjusted operating margin was up 360 basis points to 47.4% in the quarter, driven by our strong revenue growth and productivity. Year-to-date, adjusted operating income was up 16% to $1.5 billion and adjusted operating margin was up 240 basis points to 45.6%. Moving to Slide 7. Organic revenue in the Financial Technology segment declined 1% in the second quarter, resulting in 1% growth for the first half. High periodic revenue in the second quarter of 2022 drove a difficult comparison this quarter, creating a 3-point headwind. We continue to expect organic growth within the guidance range of 4% to 6% this year as in-year revenue is booked and implementation work on prior wins is completed. Adjusted operating income was up 1% in the quarter to $285 million and up 2% to $565 million year-to-date. Adjusted operating margin in the segment increased 130 basis points to 36.3% in the quarter. For the first half, the segment’s adjusted operating margin grew 60 basis points to 35.8%. We added 10 new core account processing clients in the quarter, including four wins for DNA, our market-recognized leading modern core banking platform for banks and credit unions. Fintech showcased its extensibility as an enabler of embedded finance with the win at Pay Theory. This payment facilitator serves the education and the health care sectors and plans to enable a suite of banking-as-a-service and money movement capabilities for its vertical SaaS partners. We are integrating Fintech with our merchant PFAC platform to enable Pay Theory to extend its vertical SaaS capability to banking and payments. Our goal is to provide a single integration for vertical SaaS providers who want to leverage assets across our banking, payments and merchant businesses. The adjusted corporate operating loss was $142 million in the quarter and $264 million year-to-date. The slight increase over the first half last year is largely impacted by expenses tied to our client conference, which we held in-person for the first time since the pandemic. The adjusted effective tax rate in the quarter was 20.6% and was 19.8% for the first half. We continue to expect the adjusted effective tax rate to be approximately 20% for the full year. Total outstanding debt was $23.2 billion on June 30, and the debt-to-adjusted-EBITDA ratio was 2.9 times. During the second quarter, we issued €800 million of eight-year senior notes to replace notes that matured in early July and reduced our commercial paper program balances. Variable rate debt sits at 13% of total. During the quarter, we continued our disciplined capital allocation strategy, repurchasing 8.6 million shares for $1 billion and 21.8 million shares for $2.5 billion over the last six months. We had 70.1 million shares remaining authorized for repurchase at the end of the quarter. As we continue to optimize our vast product portfolio for value and strategic fit, yesterday, we completed the sale of two financial reconciliation products to Trintech for roughly $230 million. We are fully committed to our longstanding disciplined approach to capital allocation, which includes investing in our businesses organically, maintaining a strong balance sheet, returning cash to shareholders through share repurchase and pursuing high-value and innovative acquisitions. And wrapping up on Slide 8. First half organic revenue growth was well ahead of our prior guidance for the full year, so we are again raising the range from 8% to 9%, to 9% to 11%, which considers economists’ range of second half outcomes. Based on the strong second quarter results and higher anticipated organic revenue growth, we are raising our full year adjusted EPS guidance range once again from the previous $7.30 to $7.40 to a new range of $7.40 to $7.50, representing growth of 14% to 16% over 2022. This includes a higher adjusted operating margin now expected to improve at least 150 basis points this year, up from our prior guidance of greater than 125 basis points. Lastly, we’re excited to announce our upcoming Investor Day in New York City on Wednesday, November 15, so please save the date. We’ll spend time going deeper on our growth strategies, and you’ll see how they factor into our outlook when we update our medium-term guidance. It will be a great opportunity to get to know our management team and see some of our products in action. With that, let me turn the call back to Frank.

Operator:

Thank you. We would now like to open the phone lines for questions. [Operator Instructions] For our first question, we’ll go to the line of Dave Togut from Evercore ISI.

Frank Bisignano:

Yes. Thanks, Dave. I mean as you’ve heard us talk over time, we continue to have tons of opportunity, both in the ISV and our day-to-day operating business itself, we expect it to have an acceleration. You’ll see us bringing more software into the product set, vertical solutions. We believe we have a long, long opportunity set in front of us. Remember, we haven’t gone to the back book at all. That’s an opportunity. It’s not anywhere in our guide, that back book opportunity. You should expect us also to continue to add services, and that’s really driving that penetration. So in our vision and in our visibility, we see a continuing acceleration of Clover growth and then we also have international.

Frank Bisignano:

Well, I’ve been super guarded on this item. As I like to say, we’re in early innings. We can only get volume without enablement. So step 1 is enablement. Step 2 is also, as you heard us talking about, merchants wanting it. And you heard us talked to a few today of large players there. I think as we come closer and we talk at Investor Day, you’ll get better visibility to this. It’s not even early innings, it’s the first at bat, really. But we have demand, we have issuer compliance with us on it and we have opportunity in front of us. And fundamentally, I’d like to say, none of this is in today’s set of numbers or the guide that we’re talking to you about.

Frank Bisignano:

Thank you.

Darrin Peller:

Guys, thanks. Frank, I know you touched on the Forum, but I’d love to just hear your thoughts on demand from the banks right now and just in the context of the environment we’re in going into this quarter as well as volume trends in just merchant, more importantly, consumer trends into July, what you’re seeing across the ecosystem domestically and maybe internationally also.

Robert Hau:

Darrin, just to add on Forum, as a guy who went to three or four of them pre-merger, so the last time we had in-person, the tone of the conversation and the depth of the conversations was quite different this time. Deep innovation, partnership conversations, a change in customer service that is being experienced by our clients and echo the – Frank talked about the commitment tracker, our willingness to be very transparent on what we’re doing and why we’re doing it and the openness of our solution, enabling much wider breadth of capability, not only stuff that we bring, and that’s increased over time with our Payments and Fintech segment, both serving financial institutions, but having those open APIs and the Developer Studio that we announced a couple of quarters ago, giving our clients [Multiple Speakers] this.

Darrin Peller:

That’s great. Guys, when we – just my quick follow-up is just back to the spread between volume and revenue at Merchant. If we just took out the things out of your control like gas prices and process and the inflation, for example, and we just focused on pricing and software as a penetration, maybe even just focusing on the customers that are – you’re just processing for and have low revenue, how do we think about sustainability of those factors driving better revenue and for how long?

Frank Bisignano:

Yes. And I mean just a very simple way of thinking here, we like to add merchants and we like to add them with multiple products and continue to sell products into our back book also.

Operator:

Next, we’ll go to the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Frank Bisignano:

Well, I’d go back to our Brazil business, which really is the largest business in Latin America and the rest of the region keys off of, in many ways, was created from scratch organically. And we built that business organically and then done some strategic things. I mean you hear us talking about Software Express, that was a very, very small acquisition that we believe could transcend our business throughout Latin America. We added tremendous banking franchises. I mean you look at what we talked about on Caixa here, right, we talked about the first leg of that, which was a very large deal that put us in fundamentally every city in Brazil with the leading bank in terms of size and scale. And then we came back – because of such a good job that we did, right, they came back and we went to work on what fundamentally are, call it, their lottery agencies. And BillPay is taking it and came up with a strategy that would take us to 11% of the payments. So we have great organic capability in Latin America. We brought Clover to Argentina. And we spent a lot of time, and the Argentinian platform changed and allowed it to be a dual acquirer as opposed to a single acquirer. And so those are all strategic things that happened there. So I guess what I’m really saying at the core is when we came into Brazil, we were actually the only U.S. player because everybody had retreated. And we had a deep belief with good leadership on the ground would in fact – remember, we don’t run an international business. We run three regional businesses, and then we dropped down to a model where country hedge drives the P&L there, but we run global business solutions. So I think our model is strong. I think that the action in these countries has always been going on, Darrin [sic] [Tien-Tsin]. And I think we like our hand, and we believe that these are strategic and will be opportunities for more, Tien-Tsin. So thank you.

Robert Hau:

Yes, Tien-Tsin, you hit it right on the head. Obviously, we’ve raised the revenue guidance, and so that will bring additional working capital. And of course, as we continue to see opportunities to grow the top line with now nine quarters of consecutive double-digit growth, there’s investment opportunity out there. So we continue to feel quite good at delivering the approximately $3.8 billion and see the benefit of that as working capital comes in and gets collected.

Operator:

Next, we’ll go to the line of Lisa Ellis from MoffettNathanson. Please go ahead.

Frank Bisignano:

Hey, thanks, Lisa. Thank you very much. I think, first of all, think of Carat as a go-to-market product for both our current book coming over, but that has not been where we’ve focused the growth effort. Sitting under it is an orchestration layer, which is created as Commerce Hub. And those first migrations will begin probably in the fourth quarter through the rest of time. And those will be new client migrations, right? This is a customized solution for the client that gives them total flexibility. I mean, look, we think it’s a double-digit – clear double-digit growth engine for us. We think it will scale over time. You should think about it, as we talked about over time, what type of e-com business we have total, obviously, enterprise piece is smaller than our total piece that we’ve talked about to you all. And I think you should think about it as a business that will continue to be powerful, call it several hundred millions of dollars growing double digits. And so hopefully, that frames the size of the opportunity. We have a large pipeline on it. We’re in execution mode. And we think, much like we believe Clover has become an industry leader, we believe Carat will be the industry leader.

Frank Bisignano:

Yes. I think nothing has changed in our point of view. And maybe we could step back here to the day that Stripe left us. Maybe I remember it more, I announced to you that Stripe is leaving as a processing client within a JV. And I think people really thought, wow, but it ended up fine. If you think back, we continue to add processing clients. In many cases, sometimes we help processing clients grow and they leave other services with us. So I treat processing like it’s that $1 billion business and it’s fundamentally flat, and there’s been adds. And you have large scale to lease, but it has very little processing revenue impact because of how you all – why I always try to talk us off this volume versus revenue issue because we have a lot of processing volume, but it’s not the largest part of our business. So I would think about it exactly how we presented it. We will have volume leave on a quarter and we add volume back at other points in time. Does that make sense?

Frank Bisignano:

Thank you.

Jason Kupferberg:

Thanks, guys. I just wanted to stay on Merchant to start. Can you put a finer point on where you expect Merchant revenue growth to land for the full year? And just as we start tuning back half of the year models, how much will this spread between revenue growth and volume growth potentially shrink in Q4 as you lap some of the discrete pricing actions you have taken?

Jason Kupferberg:

And just on that spread narrowing potentially in Q4, just any modeling help you want to give us on that, so we don’t get caught offside there?

Jason Kupferberg:

Yes, exactly, just because some of the discrete pricing actions you took last year, I believe, in Q4.

Jason Kupferberg:

And just as a follow-up on Fintech, just the visibility on the second half acceleration, I guess, implied in the reiteration of the full year guide and maybe some color on how you see Q3 versus Q4 because I know the comps are pretty lumpy during the back half of the year. Thank you.

Jason Kupferberg:

Thanks, Bob.

David Koning:

Yes. Hey, guys, congrats on four years. Great job.

David Koning:

And yes, I guess one of the key highlights to me in the quarter, the margins in Merchant, you had one of the best probably ever incremental margins, both year-over-year and sequentially, about 75% of the revenue growth hit the profit line. And I’m just wondering if – is that sustainable? And what exactly drove that – what drove such – is it mix? Or what was that?

David Koning:

Great. Thanks. And just a quick follow-up. Clover revenue, about 8% above volume growth. So that’s part of the spread. Is that both product and pricing? And is that sustainable, too?

David Koning:

Gotcha. Thanks, guys. Great job.

Operator:

Next, we’ll go to the line of Bryan Keane from Deutsche Bank. Please go ahead.

Frank Bisignano:

Well, I mean we’ve been looking at our history, whether it’s BentoBox, whether it’s Finxact, whether it’s Ondot, right, Software Express, right? That’s why I made my comment, they’re no longer tuck-ins, they’re more horizontal leverage. We have lots of minority investments that we hang out with, we get to know. I think that’s why our success rate. So if you went to the people at Ondot, they’re so delighted on how they integrated into a mobile banking platform that would have never been where they were headed. They were card control only. If you want to get BentoBox, their ability to come across in total. So we stay close to a lot of start-ups. We make minority investments in start-ups. We get to know them and then we get a really good shot at turning them into way more value. We have a fabulous track record of keeping founders. I’m darn proud of that. They become part of the fabric of the company. So yes, I think you should expect us to do more of those, less talk goes on here.

Frank Bisignano:

Thanks, Bryan.

Operator:

Thank you. And our last question comes from Ashwin Shirvaikar from Citi. Please go ahead.

Frank Bisignano:

Yes. I mean, first of all, I think what you’re asking – you broke up a little bit, but I want to make sure I understood. Are you asking about what we’re going to do at Clover into the back book?

Frank Bisignano:

What’s the size of that prize? Well, start at a, when we did our March Investor Day on the Merchant business, there was no Clover back book consideration into that. There was consideration from going into the back book and selling more value-added services. But you should expect us, at some point, to strategically lean in, but that’s an opportunity in front of us. I think we see the ability to actually go into our current Clover client base and bring more software services. And we think, obviously, that continues driving the spread between volume and revenue growth in Clover. But I’ve been on the Clover journey 10 years back to – maybe it’s really heading to 11-plus years, but really counted right, sorry about that, and that started with a few engineers and a few patents. I still believe we’re in the super early innings in the amount of real estate we have that we can utilize with Clover and the amount of real estate we have inside our client base that can allow us to bring Clover. But go back to it’s fundamentally not in our guide that we gave in last year, and you should expect us to give you a super-duper deep dive on this at Investor Day.

Frank Bisignano:

Yes. Let me make a point on that. You will always look at us looking at our strategic position. We believe we’re an industry leader. We have to be a top three player. We want to be prudent about capital allocation and where we deploy our internal capital. And for us and our clients, we were not the industry leader. We did a good job for them. It is not a future growth engine of the company. And so that’s fundamentally how that decision gets made, right? And you will continue to see us do this. You saw us do that with Korea. So I want you to have that framework.

Ashwin Shirvaikar:

Got it. Okay. Thank you.

Operator:

Thank you all for participating in today’s second quarter earnings conference call. That concludes the call for today. Please disconnect at this time, and have a great rest of your day.

Julie Chariell:

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer.

Frank Bisignano:

Thank you, Julie, and thank you all for joining us today. Fiserv is off to a strong start in 2023 with first quarter adjusted revenue growth of 10% and adjusted earnings per share of $1.58, up 13%. Adjusted operating margin of 33.6% was up 160 basis points. Organic revenue growth was 13%, above our 7% to 9% outlook for the full year, demonstrating our ability to sustain accelerated growth.

Our issuer clients have been active in deploying 3 highly innovative products:

Advance Defense, our new AI-based fraud solution; new card controls and alerts developed by Ondot; and point-of-sale loan solutions that help issuers compete with BNPL providers.

Robert Hau:

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I will cover additional detail on total company and segment performance starting with our financial metrics and trends on Slide 4.

Frank Bisignano:

Thanks, Bob. Before wrapping up, I want to discuss our ESG efforts. Our approach to corporate, social, responsibility and ESG is one of the ways our business produces better outcomes for our clients, shareholders and associates. Let me share some highlights of our soon-to-be published annual CSR report.

Operator:

[Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan.

Frank Bisignano:

I'd say as much turmoil as we had in March, volumes were very high. You hear us talk about what I call a backlog, meaning our books told that being implemented right now, we expect that to be very strong, [ wouldn't ] in the second half.

Tien-Tsin Huang:

Just my follow-up then, if you don't mind just -- I know you've called out the Uber win on the STAR and Accel networks for CNP routing. We've been -- I think, I've asked you a few times, Frank, on Reg II. So you mentioned a strong pipeline. You see a burst in potential deals and revenue leading up to that? Or is this going to trickle into the second half of the year? Just trying to understand the...

Operator:

Next, we'll go to the line of Ramsey El-Assal from Barclays.

Robert Hau:

Yes, Ramsey. As you've heard us talk about, there's lots of variation quarter-to-quarter in terms of that spread that you talk about. There's a combination of things like mix of small businesses versus enterprise of hardware versus processing.

Ramsey El-Assal:

Okay. So quite a few different factors contributing there. A follow-up for me is just on the international growth and merchant. It seemed just incredibly impressive. What are the kind of common threads between the different markets where -- that are helping to drive that growth? Is there anything that's going on outside the U.S. that's sparking that kind of growth?

Lisa Dejong Ellis:

Good stuff here. Frank, you highlighted Fiserv's ongoing readiness efforts related to the rollout of FedNow coming in a few months. Can you just elaborate a bit on how you anticipate and I guess maybe how quickly you expect FedNow to begin impacting Fiserv's business and where we'll see that benefit?

Frank Bisignano:

Well, I would say you have to start with a series of items. Carat, Clover, we're leaning heavily on both of those. I think we've grown them organically very well. But we've also added BentoBox, Merchant One, Nextable. So you'll see us do both. I think we have a very, very strong track record.

Timothy Chiodo:

Great. I want to dig in a little bit more on the recent STAR and Accel wins. So you mentioned numerous of those, the Uber, the large merchant acquirer last quarter and more in the pipeline. I want to just recap the value proposition. When you're speaking with these acquirers and merchants, I'm assuming part of it is lower interchange, network fees. There might be a bundled sales approach. There might be an authorization angle. If you could recap those and maybe add to the list.

Frank Bisignano:

So first, I think you did a pretty good job. So thank you, in describing the opportunity. And I would say, yes, we're in the client's office every day, right? Large institutions, and we're talking to them about our full capability.

David Togut:

Within the Fintech segment, the 12 core wins are certainly good to see. Can you talk about decision cycles, sales cycles and how they might be evolving post the regional bank crisis from early March?

Robert Hau:

Sure. And Dave, this is quite frankly, it's just old-fashioned productivity. This is really what has been at the core of our company for a lot of years.

David Koning:

Great job. And maybe just my 2 questions on merchant. First one, ex Clover, it seems like you still did mid- to upper teens revenue growth in Acceptance. So I guess my question really is, are you taking sure -- even without Clover, it seems like you're taking a lot of share in the industry. Is that fair to say?

Robert Hau:

Yes. Overall, it's hard to be concerned in my mind with 18% top line when we did 17% for the full year last year, and to your earlier question, and taking share across the board. There's lots of different elements to that volume. It did ease a bit, and certainly the bank joint ventures are part of that.

Frank Bisignano:

Yes, I'd like to thank everybody for their attention today. Please feel free to reach out to our IR team with any questions. Have a great day, and I look forward to talking to you. Thank you.

We grow and create value in 3 ways:

First, attracting more merchants to our operating systems; second, expanding the relationship we have with our merchants by encouraging adoption of more software and services modules; and third, benefiting from the growth of our existing customer base.

Robert Hau:

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I will cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4. We had a strong second quarter thanks to our execution across the business and our broad portfolio of products and services.

Operator:

[Operator Instructions] For our first question, we'll go to the line of Dave Koning from Baird.

Robert Hau:

Thanks, Dave.

Robert Hau:

Yes, Dave, thanks. As you heard us say over the last couple of quarters, we don't necessarily -- like to necessarily track yield. And the fact is we're not managing for yield, we're managing for revenue growth and overall margin. There's always quarter-to-quarter fluctuations. This quarter, last quarter are 2 examples where both yield is positive. As we continue to sell more value-added services, as we see more revenue per merchant, obviously, we see the benefit of yield.

David Koning:

Great. And then just as a follow-up, just on margins. I know you called out investments and inflation impacts. But as we look in the back half, I think it has to be up about 200 bps in the back half, 200 bps year-over-year. Is Q3 or Q4 above or below that? Like maybe the cadence just of the 2 quarters remaining.

Operator:

Next, we'll go to the line of Lisa Ellis from MoffettNathanson.

Robert Hau:

Yes. Lisa, so I think a couple of things there. One, we definitely see the improvement in inventory in the back half of the year. We have been buying significant amounts of inventory, both in terms of point-of-sale devices, but also in paper and plastic for our Payments segment, our output solutions business payments. We see that easing into the second half of the year. That was done not only the case of actual point-of-sale devices, but some components to protect our clients from having hardware available. And we see that easing in the second half of the year so we'll see an improvement there.

Frank Bisignano:

Yes, I would just add. We've had tremendous opportunity for greater product build-out, organic opportunities and market opportunities. We didn't look at it -- I now look at Finxact, Bento and Ondot as 3 examples where I think we are very, very pleasantly surprised by the opportunity to have a much larger footprint on those. Finxact would be a perfect example. We're building into industrial strength at a much faster speed.

Robert Hau:

And Lisa, I think those 2 last elements that Frank pointed out is really at the heart of why we've taken our full year outlook down from the 95% to 100%, now 90% to 95%. Continue to see those opportunities, and we want to work those opportunities.

Robert Hau:

Yes. I think overall, it's a relatively small piece. It's, call it, roughly 2% of the Payment segment. We've obviously seen good growth there and is part of the growth driver of the business. And as that continues to ramp, now we have a number of financial institutions, and therefore the number of users, as we see more and more ubiquity of that capability of that tool, i.e., more consumers making more payments, we'll continue to see good growth and so.

Tien-Tsin Huang:

Congrats to Shub on the new role. I'm excited for her. On the -- I just want to upfront ask on the visibility side, if you don't mind. Just any interesting trends in July to call out? Are volumes and new sales ramping as expected? And same thing on the cost side. You have better visibility now on the cost to support this better revenue growth.

Tien-Tsin Huang:

Got it. Overall encouraging for sure. Just my quick follow-up, just with your target leverage now. You bought a lot of stock, it sounds like, in July. Curious on the appetite to continue with the buybacks versus doing deals. It seems like there are some payment fintech properties for sale out there. So just curious if there's any change in thinking.

Operator:

Next, we'll go to the line of Darrin Peller from Wolfe Research.

Frank Bisignano:

I'd start on merchant. We purposely had investor conference to talk about how we saw it over the longer haul. And obviously, we do believe in driving up our penetration rate of software services. You saw that go up 350 basis points. at 15%. We talk about moving that over the longer haul to 25%. So ARPU is clearly a focus of ours.

Darrin Peller:

Okay. And Bob, just a quick follow-up on the yield again, if you don't mind.

Darrin Peller:

Okay. Guys, just very quickly, the free cash and margin profile. I mean, the business is obviously growing notably faster. So should we expect maybe a more moderate margin story going forward, or free cash conversion, just to support this kind of growth? Or is it just the anomaly-stic items around inventory build and restructuring, and either way, you should get back to that 95% longer term?

Operator:

Next, we'll go to the line of Ramsey El-Assal from Barclays.

Frank Bisignano:

I mean, the way I think about it is we run a large enterprise. We have competition in every country. We have competition in every business. I think our solutions are world-class and leading. And I think ultimately, this is about how we provide our clients an opportunity to grow their businesses, whether it's a small business, a community bank or large enterprise.

Robert Hau:

And Ramsey, maybe the thing I'd add to punctuate is, at the end of the day, we believe profitable, scaled businesses will perform over time. And competition comes and goes. We'll continue to execute, we'll continue to perform for our clients, and we'll continue to win.

Ramsey El-Assal:

Great. And online, offline, same story?

Operator:

Next, we'll go to the line of Jason Kupferberg from Bank of America.

Robert Hau:

Yes, Jason, thank you. If you look at the 3 segments, obviously, we've lifted the full company from 7% to 9% previous outlook to 9% to 11%. So we're above the year -- we're above the midpoint of the -- excuse me, above the medium-term outlook that we've given in the past. In the payment segment, as you pointed out, we said during the prepared remarks that we think it's well within the range of a 5% to 8%.

Robert Hau:

Yes. I think -- so it varies by segments and varies by business within that segment. If you think about the overall impact of inflation, Obviously, we've got some revenue growth or revenue growth driven by that inflation, but bigger impact from an expense standpoint. We do see that flowing down for the balance of the year. So both a little bit less benefit on the top line but a little less hit on the expense side. So we'll see some margin improvement into the second half of the year. That is the large driver of that, combined with those investments that we're seeing, are driving the reduced growth in our margin. Still up 100 basis points over the prior -- at least 100 basis points over the prior year, but inflation and those investments are certainly driving some of that.

James Faucette:

Thanks for all the color and detail. You mentioned the cloudy crystal ball right now. Can you just Give us a little bit of insight of how you're thinking about kind hof macro assumptions and what you're seeing maybe right now that's influencing those in terms of how you're formulating outlook for the rest of this year?

Robert Hau:

James, obviously, if you read the Wall Street Journal or pick up any news report with interest rates and inflation and, obviously, a headwind. Unemployment is quite low, that's remarkably resilient. The consumer balance sheet is quite strong. So overall, we feel pretty good about the visibility near term. It's the '23, '25, we're just kicking off our 2023 budgeting cycle.

Robert Hau:

Yes. I think 2 things there. One, we're about 85% fixed debt, 15% variable. The -- look, by far, the biggest chunk of that is commercial paper, and there's a balance of commercial paper both in U.S. dollar and euro. Obviously, that's going up, but that is quite a bit lower than fixed rate debt. So we're in good shape there.

Operator:

And our final question comes from Vasu Govil from KBW.

Robert Hau:

Yes. I think if you look at the 3 segments kind of in order of what might see impact in a meaningful downturn

Vasundhara Govil:

Excellent. And just one quick modeling one on FX. Obviously, FX headwinds are trending a little bit worse. Can you update us on what the expectation on that is for the year?

Frank Bisignano:

I'd like to thank everyone for their time, and we look forward to talking to you. Appreciate it. Have a great day.

Robert Hau:

Thank you, Frank, and good morning, everyone. I'll cover some additional operating detail on our 3 segments. If you are following along on our slides, I'm starting with our financial metrics and trends on Slide 4.

Frank Bisignano:

Thanks, Bob. I am very proud of the results we've accomplished this quarter. As diversity and inclusion continues to be at the top of our CSR agenda, we are focused on ensuring alignment and investment into our employee and community engagement strategies.

Tien-Tsin Huang:

I had a couple of questions. The first one, on the acceptance segment, obviously, very strong there. It looks like volume growth matched Visa's but the revenue growth did exceed that. So what's driving the higher revenue spread to volume in this quarter? And what should we expect here going -- as we go through the balance of the year? And I had a quick follow-up, if you don't mind.

Frank Bisignano:

I think -- it's Frank. First of all, it was way more than physical terminals. It was component parts also, and we thought it was a very prudent and smart move to buy ahead into the supply chain given the volume opportunities we have across the board which drive growth. So that would be clearly in the one-timer inventory category.

Operator:

Our next question comes from Lisa Ellis from MoffettNathanson.

Robert Hau:

Sure, Lisa. So within the payments segment, stimulus certainly created a tough compare to Q1 of last year with our prepaid business. And as we saw really late '20 and into '21, a consumer shift of credit to debit, which we think was stimulus-driven, we're now starting to see that kind of revert back to mean or to norm with more move to credit than it is debit.

Frank Bisignano:

No, it's a new revenue stream. We've always believed that we had a data advantage. And we did some things organizationally, maybe you remember, at the top of the house where we've dedicated talent against it, and it is manifesting itself. We have a pretty good road map to capabilities to offer to our clients and then to jointly offer with partners and combining capabilities. That is why we believe when we come into the latter part of this year and then going into next year, a completely new revenue stream with high margins in those capabilities in providing real-time data, in providing decisioning data, and that's what we have right now.

Operator:

Next, we'll go to the line of Darrin Peller from Wolfe Research.

Frank Bisignano:

The one I'd talk about, I think the team in fintech and their maniacal focus on how to serve the client and growth is showing up. We had an expectation that we would get to these type of levels. And when we laid it out in December of 2020, I think the action plans in that team and the product innovation and bringing all the components of the company where we think we have a strategic advantage actually got us to where we are today.

Robert Hau:

And Darrin, in terms of CPI, we do get -- particularly in our core account processing business, a typical contract does allow for annual CPI changes. Those are very typically annual items. So at the end of the year, we calculate the CPI index and apply it to the next year's billing.

Darrin Peller:

I have one quick follow-up -- that's helpful. But Frank, just from an M&A standpoint, when we think about what you just said, the leverage level now below 3. Obviously, opportunistic buybacks make a ton of sense. But at the same time, there's definitely valuations coming in across the market. So can you just revisit your preference in terms of capital allocation going forward and what types of assets?

Operator:

Our next question comes from Dave Koning from Baird.

Robert Hau:

So from a quarterly flow standpoint, obviously, first quarter closing after going through that merchant conference, we put up a 20% number. So we certainly don't expect 11.5% every year or 11.5% every quarter. Obviously, a great first quarter out of a 5-year projection, lots left to do, in very good shape in terms of executing on the multiple elements of growth that we talked about during that conference. Clover and Carat continued to perform well. We continue to invest in new capabilities there. So I feel like we're off to a great start.

David Koning:

Yes. Great, great. And then just one follow-up. The margin cadence through the year, Q1 was a little slower than the guidance. Q2 a little slower, too. Is that fair and then the back half is when you get maybe above the full year guidance?

Jason Kupferberg:

I just wanted to come back to the payments segment for a second. It sounds like you're seeing some positive signals there. You've got some newer wins coming down the pike. But just so that our expectations are calibrated properly, I know you're talking about the medium-term range of 5% to 8% being good for this year, but should we think about more of the lower half to maybe the midpoint just given that we're starting the year at 5%? I just want to make sure that we've kind of got the right cadence in our thought process because I know the comps get tougher from here on out.

Jason Kupferberg:

Okay. That's good to hear, sure. And just a follow-up on the Finxact acquisition. How much revenue do you expect it to contribute to the fintech segment this year? And can you just go a little deeper maybe into the go-to-market strategy there and the kind of synergy that Fiserv is going to bring to this asset?

Operator:

Next, we'll go to the line of Ramsey El-Assal from Barclays.

Frank Bisignano:

Well, I mean, I would say if you looked at April, it fundamentally looks the same with maybe some places having a little more and some places having a little less. Obviously, areas like petro services and restaurants are holding up at the same level, maybe a little bit on travel and retail.

Ramsey El-Assal:

Okay. And I also was wondering if you could give us a little more color on the revamped bill pay interface that you mentioned that would be rolling out, I believe, in the summer. What kinds of things can you do with that business to kind of continue the nice inflection that I think you're seeing back in the right direction?

James Faucette:

I wanted to touch on the fintech segment first. Just obviously, the -- and try to get a sense of appetite of banks to spend and continue to upgrade their systems, especially given what looks to be a strong earnings period and potential for them as interest rates change, et cetera. So just what's your feel right now for opportunity sets there? And are you seeing any changes or improvements in appetite?

Frank Bisignano:

Well, I think Finxact was a very, very big acquisition which gave us, in my opinion, the most modern platform in the industry that can tremendously scale. So I think that, that was very important and sets us up for the long haul.

Robert Hau:

James, the one thing I'd add is, I guess, I don't think about it and I don't think Frank thinks about it as which should we do. I think given the capital we have available to deploy, we think we can do both. In the last 15 months, I think we've done 8 different acquisitions, both focused on digital as well as on our merchant business. Those digital investments benefited our merchant segment, they benefited our fintech segment, and they benefited our payments segment. And ultimately, as Frank pointed out, it's all about how can we better serve our customers so that they can better serve their customers.

James Friedman:

This Slide 25 on the annual guide is super helpful. But Bob, I was wondering if there were any call-outs specific to the Q2 of '22. For example, are there any standouts that we should be aware of from the Q2 of '21, like periodic or anything else that we should keep in mind?

Robert Hau:

Yes. We talked a little bit about this earlier. We get various flows. We actually, I think, said this back in Q4 when we first gave the 150 basis -- at least 150 basis points expansion for the full year. Because of some of the timing of the investments we're making, because of the ramping down of some of the integration work that we're no longer adding back from an adjusted operating margin standpoint, you'll see margins improve in the second half.

Frank Bisignano:

Thank you. Thank you, everybody, for your attention today. Please feel free to reach out to our IR department and team with any questions. And have a great day, and I look forward to talking to you in the future. Thank you.

Frank Bisignano:

Thank you, Shub, and thank you all for joining us this morning. As you know, we serve as the operating system for commerce and money movement across our client base of banks, credit unions, fintechs, and businesses ranging from SMBs to mid-market or large enterprises. We help our clients grow by extending our platform to capture new services and new money flows.

Lisa Dejong Ellis:

Good stuff here. I had a question with just hoping to drill in a little bit on your outlook for Merchant Acceptance for 2022. I know you mentioned you're expecting it to return to the medium-term range. I think that's 9% to 12%. So are you expecting Merchant Acceptance to get back to double-digit growth? And then could you drill in a little bit on 2 of the big drivers in there, what you're looking for out of Clover and then maybe what you're looking for out of your international business as you look out into 2022 to give you confidence in that outlook?

Operator:

Next, we'll go to the line of Tien-Tsin Huang from JPMorgan.

Robert Hau:

Yes, Tien-Tsin, I'll start and Frank can jump in. I think you'll see continued investments in all 3 of our segments. Obviously, each one of them have a slightly different growth trajectory. As Frank just talked in answering Lisa's comment about the 9% to 12% merchant growth, we expect all 3 of our segments to perform in the medium-term outlook range, 4% to 6% for the Fintech segment and 5% to 8% for payments.

Jason Kupferberg:

Wanted to see what color you might give us just on Omicron impacts you may have felt in December and January, particularly in Merchant, but maybe a little bit on the issuer processing side, too. And then just how that translates into how we should be thinking about first quarter revenue growth by segment. I know you generally have some pretty easy comps there in Q1.

David Koning:

Nice year. So I guess a couple of questions. First of all, on payments, 2021, it looked like full year about 5.5% organic, and you're kind of saying 5% to 8% would be 2022. So I'm just kind of thinking through the accelerating and decelerating factors, like I would think debit probably decelerates. But then what should accelerate to kind of propel growth in '22 to offset the debit deceleration?

Frank Bisignano:

Yes. So first, the sale of the back book will -- we expect to take place this quarter. We're almost halfway through the quarter. It isn't closed yet, but we do expect it soon. So it will be a modest -- it's a modest impact to the year, less than 50 basis points to the adjusted revenue for the company for the year. So a pretty small impact to Q1, particularly given that it's not yet closed. But I think you're largely in line. I don't expect any difference in terms of the seasonality as you go from Q1 -- Q4 to Q1.

James Faucette:

I wanted to ask quickly on capital allocation, and you seem to have stepped up the pace of acquisitions recently. And I'm wondering with the slowing in valuations that we've seen at least in public markets, is that creating incremental opportunities for acquisitions, do you think? And how dynamic or flexible can you be on capital allocation, especially between acquisitions, buybacks and debt reduction? Just love to get kind of your sense and color around those topics.

Robert Hau:

James, just to kind of put an emphasis on that last point from Frank, it isn't an either/or it isn't an M&A or a share repurchase. In 2021, we deployed capital across the board. We spent $850 million on M&A. We repurchased $2.6 billion, so returned $2.6 billion to shareholders. That's the highest we've done as Fiserv, including $1 billion in the fourth quarter.

Operator:

Next, we'll go to the line of Timothy Chiodo from Credit Suisse.

Robert Hau:

Sure, Tim. So you had a lot of elements to that question, make sure I hit all of them. First and foremost, as you point out, we have a variety of different methods for revenue generation in our Merchant business, certainly a mix of volume driven as well as transaction driven. And of course, the other element of that is a variety of different distribution channels, whether it's a direct channel or through our partners or through a joint venture. So lots of different ways that, that revenue comes to us.

Darrin Peller:

Can we just touch on the investments and the capital intensity you're putting into the business? Obviously, it's -- with the strong growth you have, it probably begs the question of whether or not your free cash conversion should stay in this 95% to 100% range versus the historic median term, which I think we kind of anticipated. But I'd just love to hear a little more color on what your thought process is on that. And then also whether or not we still feel good about the $25 billion of free cash over the next few years, $30 billion of capital deployment capabilities. .

Frank Bisignano:

Yes. Why don't we start with that first? The concept on that is to really get you all to better understand the value being created for each client, that when you think about average revenue per merchant, Clover's impact to give you a real good look at the growth rate. And we talked to you about the e-comm business, too. We said [ covered them both ]. So when you look at it, you could see what that long-term ramp we have in here and the power of both of those platforms. So that would be answering the last part first.

Operator:

And our last question comes from David Togut from Evercore ISI.

Frank Bisignano:

Yes. Well, I would say, first of all, there's definitely a war on talent, and there's definitely an inflation. And when you look in our model, we've accounted for the world we live in within that guide. We are very maniacally focused on how to create these work environments that attract the best talent, retain the best talent and continue driving innovation in a manner that gives us the outcomes that we've been getting and continue to drive forward. You know, Bob, maybe...

Robert Hau:

No, I would not say that. Obviously, at this point, we're not ready to update 2023. But given some of that technology infrastructure spend and the real estate spend that I talk about -- that I talked about earlier, I expect that to drift down as we exit 2022 and beyond.

Robert Hau:

Thank you.

Frank Bisignano:

Thank you, Shub. And thank you all for listening in as we share our results for the quarter and highlight the progress against our growth agenda.

We also continue to enrich our open banking and fintech ecosystem, again, in line with the goals laid out in last year's investor conference. We launched our new developer portal, which we call the Fiserv developer studio, towards the end of the third quarter. The developer studio provides rich and expansive API integrations to support banks, fintechs, merchants and enterprise clients with developer tools needed to accelerate innovation, integrations across the entire Fiserv ecosystem. Additionally, we also announced partnerships with exciting new fintechs:

FutureFuel.io and Streetshares, aimed at creating new white space opportunities in digital for both retail consumer and small business lending, respectively.

Now looking to our segment results, starting on Slide 6. Organic revenue growth in the Merchant Acceptance segment was a very strong 18% in the quarter and 21% year-to-date. Our revenue was driven by a combination of growth in volume and transactions. Our results were once again driven by strong performance across all 3 platforms:

Clover for SMBs, Carat for large businesses and Clover Connect for ISVs.

Frank Bisignano:

Thanks, Bob. I'm very proud of the results we've accomplished, with another quarter of double-digit adjusted revenue growth and double-digit adjusted EPS growth.

Operator:

[Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan.

Robert Hau:

Thanks, Tien-Tsin. This is Bob. I would attribute largely that variation to the difference between volume and trends of our mix relative to what you might see in Visa as well as the yield. Ever so slightly, that ebbs and flows within the quarter depending on the mix of SMB versus enterprises. Overall, we feel quite good about the overall performance, how we're performing against the overall market and against our peers.

Robert Hau:

Yes.

Lisa Dejong Ellis:

Terrific. I think I'll follow up on Tien-Tsin's question, and actually specifically ask about the large processing client roll off that you highlighted. That looks like it's about a 5-point drag on overall volumes in Merchant Acceptance and a larger drag on e-com. Can you just elaborate a little bit on that situation? And specifically, how should we think about how it's affecting revenues. Like if it's a low-yielding client? And then also, is that something now that will take another 3 quarters before it lapsed? Or just any additional detail there would be helpful.

Operator:

Our next question comes from Dave Koning from Baird.

Robert Hau:

So you're talking about growth quarter-to-quarter sequentially?

Robert Hau:

Yes, David, I think it's tough to call anything normal these days. I would expect our fourth quarter to be roughly in line with third quarter sequentially for this year.

Robert Hau:

Yes. I wouldn't call it any delays per se, but we highlighted a few growth drivers that we'll see into 2022

Operator:

Next, we have James Faucette from Morgan Stanley.

Frank Bisignano:

Well, maybe I'll talk about what we've been doing on M&A, and how we're looking at M&A. And I think the first thing is, whether it's M&A or building out businesses, we're investing organically and inorganically. And I think the thing that, hopefully, you see is our agility and speed and innovation.

Jason Kupferberg:

Just wanted to start with a follow-up on the -- that large processing client that is coming out of the numbers here. I guess it looks like it's an e-com client just based on how much it impacted the e-com volume numbers specifically. And was this just a competitive situation that was becoming too price intense from your guys' perspective? Just wanted to get a little bit more color because it's fairly sizable, it appears.

Jason Kupferberg:

Okay. And just on the free cash flow conversion. I just wanted to hone in on what, I guess, were the most significant changes in your expectations versus last quarter. Because I mean, at the end of the day, I know, on a quarterly basis, obviously, working capital can move around. But the full year revenue is coming in right in line with your plan. Presumably, the diminished benefit of the NOL would have been known previously. So is this really just a function of kind of higher CapEx than you anticipated at the end of the day versus what you were thinking last quarter?

Operator:

Next, we have Ramsey El-Assal from Barclays.

Frank Bisignano:

Yes. I mean I take this as a long-term issue really back in time, right? I mean we're a platform, as we like to say, for everything from fintechs to SMB to large enterprises. And if you think about what we did with Clover, that was opened up a community to the development community, so we can be a platform for them and then a platform for our end users.

Operator:

Next, we have Darrin Peller from Wolfe Research.

Frank Bisignano:

Yes. And I would just add, Clover is a platform of choice. You heard about the international expansion of that. And I would think that as people are making choices going forward with disruption, for others, that will just further accelerate our growth.

Robert Hau:

Yes, Darrin. I think the way we think about capital deployment has been and remains quite consistent and quite balanced. We continue to focus on growing the business organically, doing value-accretive inorganic growth, i.e., acquisitions. And then, obviously, always looking to return cash to shareholders where appropriate. I don't think you ought to anticipate us doing a large buyback. As you know, we're essentially in the market every quarter and have been for years, short of the short period of time between announcing and closing our merger back in 2019. And we'll continue to be a disciplined capital allocator.

Timothy Chiodo:

I wanted to dig in a little bit more with 2 mix-related questions on Clover. And you sort of alluded to in the last question, but hopefully, we can get some of the mix percentages. So first would be around the portions of revenue. So a large portion would be payments related. But also, you highlighted at the Investor Day some increasing software attach; strength in value-added services; and then also, clearly, there's the hardware component. So even if you could just give sort of rough breakdown of those components.

Robert Hau:

Yes, Tim. So a couple of things to think about there. One, in terms of channel, we are seeing broad growth across all of our channels, whether it's through partners, through ISV, ISOs, through obviously our joint ventures as well as, as I mentioned in a previous question, building out our direct channel. We have, have had and continue to be focused on having a very wide breadth of distribution capabilities and continue to focus on winning in all of those channels. And that remains -- it has been and will continue to be a broad focus of ours.

Operator:

Our next question comes from David Togut for -- from Evercore ISI.

Robert Hau:

Yes. I think a couple of things. Number one, we have a number of referral partners. And over the last several quarters, we've announced these or talked about these, whether it's Zip or Bread or Citizens Pay. We continue to be focused on enabling multiple options for our merchants. And obviously, we're the merchant acquirer for those merchants, and so providing that capability maintains that relationship with those merchants. And in terms of credit versus ACH, et cetera, I think broad industry view is, today, a large portion of that -- paying for buy now, pay later activity is actually paid or are finally executed through card payments.

Robert Hau:

No. I think the key there is, while buy now, pay later has a high volume in terms of news, it's still a relatively small portion of the overall GPV or merchant space and not moving the needle. And in fact, in some instances, instead of one transaction, you're actually seeing 4 transactions.

Dan Dolev:

Can you give us some color on the -- what's implied in the fourth quarter organic growth guidance for the 2 other segments, for Payments and Fintech? That would be great.

Dan Dolev:

Can you give us some color on what's implied by the guidance, the organic growth guidance for the other 2 segments, Fintech and Payments and Networks?

Operator:

And that was our last question for today's call.

Operator:

Thank you all for participating in today's conference. You may disconnect your line, and enjoy the rest of your day.

Melissa Cougle:

Good morning, and welcome to the Frank's International conference call to discuss our second quarter results. Our speakers today, as shown on slide 2 of the earnings presentation, are Mike Kearney, Chairman, President and Chief Executive Officer; and myself, Melissa Cougle, Senior Vice President and Chief Financial Officer. A presentation has been posted on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investors section of our corporate website at franksinternational.com.

Melissa Cougle:

Thank you, Mike. Referring to slide 9. During the second quarter, revenue increased 14% sequentially showing strong growth. We experienced improvements across all segments and regions during the quarter with increasing activity levels globally and improved penetration of our newer product lines. The company was able to translate these increases into significantly improved profitability with adjusted EBITDA of $12.4 million, an increase of 85% from the prior quarter. This strong performance is due to Frank's historically high operating leverage with additional benefit from our cost improvements made and the adoption of higher-margin technology packages.

Operator:

Thank you. Ladies and gentlemen, this concludes our conference. We thank you for participating. You may now disconnect.

Melissa Cougle:

Good morning, and welcome to the Frank's International conference call to discuss our first quarter 2021 earnings. Our speakers today, as shown on Slide 2 of the earnings presentation, are Mike Kearney, Chairman, President and Chief Executive Officer; and myself, Melissa Cougle, Senior Vice President and Chief Financial Officer. A presentation has been posted on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investors section of our corporate website at franksinternational.com.

Melissa Cougle:

Thank you, Mike. Referring to Slide 7, revenue decreased 1.6% sequentially, in line with our previously disclosed expectations. We experienced sequential improvement in both our Tubular Running Services and Cementing Equipment segments this quarter, and relatively lower performance in our Tubular segment as some of our pipe deliveries have been pulled forward into the fourth quarter of 2020.

Operator:

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Melissa Cougle:

Good morning, and welcome to Frank's International conference call to discuss our fourth quarter and full year 2020 earnings. Our speakers today, as shown on Slide 2 of the earnings presentation, are Mike Kearney, Chairman, President and Chief Executive Officer and myself, Melissa Cougle, Senior Vice President and Chief Financial Officer. Joining us for the Q&A portion of today's call will be Steve Russell, Senior Vice President of Operations.

Melissa Cougle:

Thank you, Mike. Referring to Slide 7, despite a 14% growth in the fourth quarter, the company did see an overall revenue decline of 33% year-over-year, driven by the tremendous reduction in rig activity. This was brought about by the pandemic and affected both domestic and international rig counts. Mike mentioned the drivers of our strong fourth quarter performance, and we are optimistic these results indicate we are seeing a recovery pattern emerge, positioning us for further growth in 2021. Simply stated, we believe the worst is behind us. Full year adjusted EBITDA was $9 million and fourth quarter adjusted EBITDA totaled $4.6 million, representing a substantial improvement compared to the prior quarter. This also generated an incremental EBITDA margin of approximately 47%. Improved customer activity levels, especially in our Tubular Running Services segment and continued realization of our cost reduction measures, enabled our organization to move adjusted EBITDA back in the positive territory compared to the prior two quarters. The company made clear our ambitious goal of achieving positive cash flows for the year, and we are proud to close out 2020 meeting that goal. We produced $39.7 million of operating cash flow, which enabled $11.2 million of free cash flow generation. We were able to enhance free cash flow generation in the fourth quarter, particularly due to improved customer activity levels, strong working capital management and a continued focus on limiting capital spend. As of year end, the company had cash and cash equivalents of $210 million and no outstanding debt on its credit facility. Turning to Slide 8. Our TRS revenue totaled $65 million, generating $3.8 million in adjusted EBITDA during the fourth quarter. Our TRS segment benefited from the redeployment of previously sidelined rigs and improving backdrop in our US land business. Our greatest area of regional improvement was in Africa, which bottomed in the third quarter and experienced a strong rebound in the fourth quarter with multiple rigs returning to work. Our North American offshore region benefited from strengthening in the Caribbean and increased activity levels in offshore Mexico. In the Tubulars segment, as presented on Slide 9, third quarter revenue totaled $15.9 million, a decrease of 4% sequentially and 25% year-over-year. The slight sequential decrease in revenue was primarily due to strong tubular product sales in the prior quarter, which was partially offset by stronger tubular product and drill tool sales internationally during the fourth quarter. Segment adjusted EBITDA totaled $3.9 million or 25% of revenue in the fourth quarter. This compared to $1.8 million or 11% of revenue in the prior quarter. The enhanced profitability in our Tubular segment primarily reflects increased sales internationally and realization of fabrication and manufacturing efficiencies that have been initiated alongside our profitability improvement plan. Concluding with segments on Slide 10. Cementing Equipment segment revenue for the fourth quarter totaled $15.5 million, which was a slight increase sequentially and largely due to US land business recovery. The 38% year-over-year decline was driven by reduced customer activity levels in both US land and US offshore markets. International growth in this segment increased 35% year-over-year and has played a meaningful role in enhancing segment profitability, which was also improved on the back of many operational cost reductions stemming from our business reorganization conducted in 2020. Segment adjusted EBITDA totaled $4 million or 26% of revenue in the fourth quarter compared to $3.4 million or 23% of revenue in the prior quarter, resulting in an incremental EBITDA margin of approximately 120%. Turning to Slide 11. We have spoken throughout the year about our focus on redefining our cost structure, and feel 2020 was a pivotal year for Frank's in this regard. We achieved an overall 27% reduction in costs or $143 million year-over-year. $88 million of those reductions could be characterized as relating to our direct operational cost base. Although some of our cost reduction initiatives focused in this area, our core efforts have been to permanently reduce our more fixed indirect support costs, including both cost of revenues and SG&A. The entire company was engaged in this effort since November of 2019, and we achieved over $55 million of savings year-over-year in this cost category, the vast majority of which is permanent. We have completed virtually all of our specific cost reduction initiatives and we'll see the full year benefit of those reductions in 2021, along with additional efficiencies we believe will be gained during the year from our ERP implementation, which is going live presently. And looking forward and referenced on Slide 12, we believe that activity levels troughed during the third quarter and we do not see signs of further weakening, barring any unexpected pandemic effects. We expect the activity level improvement seen in the fourth quarter to hold in the first quarter of 2021 and begin to build strongly once more in the second quarter. We have clear visibility that certain major projects will commence, giving us some confidence that the planned improvements beginning in the second quarter will materialize and provide a backdrop for full year revenue growth in the high single digits. Enabled by our PIP effort, we believe that the company has a path to achieve double digit adjusted EBITDA margins in 2021 with this revenue growth, benefited by the full year effect of our cost savings programs. We also intend to maintain our strong balance sheet and have, once again, set aggressive working capital improvement goals to stretch ourselves and provide for positive free cash flow for the year. We will also hold our discipline around capital deployment and expect that 2021 CapEx should be approximately $25 million. With that, I will turn the call back over to Mike for a few closing comments before we open up the lines for Q&A.

Operator:

Our first question comes from Ian McPherson from Simmons.

Mike Kearney:

Why don't we take those in reverse order. So I'll let Steve comment on TRS first.

Melissa Cougle:

Yes, I'll add to that on the Cementing side as well, Ian. So we actually have a little bit of product business on the Cementing side as well. And some of the cementing growth this year, particularly in Q1, will be coming from US land, which is a little bit of lower margin as well. So I think we will end up for the year probably looking in that range that you're seeing in Q4, maybe a slight degradation but somewhere in that range. I think the difference is what do we see here in Q1 as we're continuing to find that trajectory.

Steve Russell:

In the TRS business, it runs typically 70% to 80% offshore, obviously, 20% to 30% land. I don't have the latest Cementing numbers and that's obviously being driven by the recovery in US land that we have been seeing…

Mike Kearney:

One point you made earlier, Ian, that I would like to emphasize is on the Tubular side with those two businesses being so different, the drilling tools and the actual Tubular business, we're projecting we'll continue to see volatility in that as we move into this year. Overall, we feel pretty good about it but there will be lumpiness there. So I'm glad you pointed that out.

Mike Kearney:

I think dividends are still a little ways off. Of course, it would be nice in the future to reinstitute a small dividend, but we're not even actually thinking about that right now. In terms of the CapEx, we're going to try to keep our CapEx pretty much in line this year with last year. It's really a challenge. We've got so many good new technologies and they do require capital. This isn't just a steady state business. We're always trying to invent with a purpose. The things we've come up with over the last year, the customers love, but it takes capital to build them. So it's that high wire act of trying to roll out new technologies, generally having higher margins and not spend a lot of money at the same time. So it doesn't fit needly in the same bag but we're going to do our best to reinvest in the business wisely is all I can say.

Taylor Zurcher:

And let me echo Ian on congrats for a great quarter. My first question is with respect to the 2021 guidance. You're basically framing things as high single digits revenue growth year-over-year. I was wondering if you could help us think about the revenue growth you're expecting that's embedded in that forecast on a segment level, which ones might grow faster than that high single- digit rate, which one might be lower than that? And then specific to TRS, I'm just curious, as we think about the ramp Q2 and beyond, if you could point to any specific regions that are driving the bulk of that growth?

Taylor Zurcher:

Just the regional drivers within TRS regional drivers type of range…

Steve Russell:

Yes, I mean, I think is everybody was aware, Africa all but shut down here during Q2, Q3 2020 with COVID hitting. We've seen a wake up in Africa in Q4 and we sort of continue to expect that as we go through Q1 and then particularly in Q2, Africa waking back up again. We've also got some projects starting up in Australia and Brazil, where we have line of sight to some fairly substantial projects starting up in Q2 onwards.

Steve Russell:

Yes, I think there's a little bit of both in there, yes. The rebound we've seen to date was really sort of COVID projects coming back on stream again. But we have seen and are talking to clients now about projects restarting. Again, I'll call out the Eastern Mediterranean here where it was totally dead last year, but now clients are looking and starting to plan projects in that part of the world where those would typically kick in. We're expecting somewhere around Q2, Q3.

Jason Bandel:

My first question, I guess, I'll start on the US land side of the business. I know you guys spend a lot of time and effort pulling out costs and rightsizing locations in 2020. And the market, obviously, started to recover off at the very low base. How do you guys balance trying to be opportunistic with the ability to keep your cost structure low and in place?

Jason Bandel:

And then on the technology side, I know, Mike, you spent some time on the call highlighting some of the commercialized technologies that you guys deployed into the field. Can you talk about your approach to monetizing your technology development and what customer adoption rates look like, especially for some of the remote operated technology that you guys are deploying?

Steve Russell:

I think Mike's prepared comments there, there was commentary on some sort of decrewing type technologies that we're putting in there. And I think COVID has accelerated the demand for that. But I think that will stick in a post-COVID world, a demand for having less people to be able to provide operations on a rig site. So like Mike mentioned, we're pushing those out quite aggressively and we're fairly hopeful that on customer uptake on those.

Jason Bandel:

I'll try to squeeze one more in here, I guess, coming out of the downturn and so far in the early stages of the recovery. Can you talk about if the competitive landscape has changed or evolved at all? And obviously, you have a structurally smaller US land market and you touched on your prepared remarks about customer responses being varied internationally. How are you kind of seeing this customer competitive landscape evolve here?

Operator:

And I'm not showing any further questions at this time. I would like to turn the call over to Mr. Michael Kearney for closing remarks.

Operator:

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Jeffery Yabuki:

Thanks, Peter, and good afternoon, everyone. As you can see, we delivered excellent results this quarter and once again are setting the standard for performance in these difficult and uncertain times. Our strong performance is a testament to the collective power of the more than 40,000 Fiserv associates around the world who are committed to serving clients with passion and excellence. Your company has stepped up beautifully and is well down the path to achieving the promise of the transformational combination of Fiserv and First Data, which closed only 15 months ago. We have the strongest solutions, significant synergies, market momentum and a $500 million incremental commitment to innovation which have come together to propel market-leading results in these unprecedented times.

Looking at the business environment, our client conversations continue to be quite encouraging and generally centered on helping them grow their business, reducing their operating costs and better serving their customers right in the wheelhouse of what we do. As we had discussed on the last quarterly call, our back-to-business program to help minority and specifically Black-owned small businesses is in full force as we advance our nationwide objective:

distributing at least $10 million in grants to qualifying businesses. We continue to see an increased interest in all things digital. Whether it's around e-commerce, more card use at point-of-sale, touchless payments, including digital wallets, or accelerating P2P payments, we are well positioned to provide the capability our merchants, financial institutions and business clients need.

David Koning:

Remarkable quarter. Great job.

Frank Bisignano:

Thank you.